The Rotten Apple: Tax Avoidance in Ireland

Readers might be interested in this article.

It’s a descriptive overview of the legal/ethical issues involved in Ireland’s role in faciliating Apple’s corporate tax avoidance strategies.

The conclusion is as follows:

In light of the European Commission’s investigation into state aid, Apple has generated the largest bill in unpaid taxes, as compared to Starbucks, Google, and Amazon, which were also investigated. The Commission has ordered Ireland to recover these taxes plus interest, but Ireland has refused and has appealed the Commission’s order in the EU General Court and, if necessary, will appeal to the European Court of Justice. Apple has also decided to appeal. The issues here are whether tax avoidance is ethical and whether Apple should pay the $14.5 billion plus interest that the Commission is demanding. In both of these issues, the conclusion is no. While Apple’s tax avoidance is legal, it is clearly unethical in its use of tax havens, mainly Ireland, and shell companies like Apple Sales International. Through these schemes, Apple has avoided paying taxes in any country, although it technically should have been taxed in the U.S. However, Apple should not have to pay the $14.5 billion plus interest because the repercussions outweigh the possible benefits, and the Commission should not have sought recovery of past transfer pricing rulings under its new approach. Instead, the U.S. and the EU should work together to close the loopholes, and Apple should be sanctioned by the U.S. because, ultimately, the U.S. is the country that should have received those taxes. This would also help reduce other corporations’ tax avoidance, both in the U.S. and by U.S. companies in Europe.

By Aidan Regan

I'm an Assistant Professor at the School of Politics and International Relations, University College Dublin (UCD), and Director of the Dublin European Research Institute (DEI). My research is primarily focused on comparative and international political economy.

3 replies on “The Rotten Apple: Tax Avoidance in Ireland”

There is nothing new here but while Apple took advantage of various loopholes, the decision to treat Irish shell companies as stateless for tax purposes was more than exploiting a loophole – it was effectively a fraud.

According to the Department of Finance “An Irish registered non-resident (IRNR) company is one which is incorporated in Ireland under Irish company law but is not resident here for tax purposes because the company is controlled and managed abroad.”

To reduce the use of IRNR companies for criminal activity, the Finance Act of 1999 included a number of measures.

Section 83 required to be delivered deliver to the Revenue Commissioners a statement in writing containing particulars of—
(ii) in the case of a company which is incorporated, but not resident, in the State— (I) the name of the territory in which the company is, by virtue of the law of that territory, resident for tax purposes.

Besides the stateless issue, when Apple for example states that 65% of fiscal 2015 profit was foreign-sourced while also saying that most profit is generated in the US, it takes a lot of fake invoicing to move $47bn from various foreign units to the Irish shell companies — a different standard of course applies but in recent times Ireland jailed local bankers for categorising inter-bank loans as deposits.

“Thus, the Commission has disregarded Irish tax laws in favor of what it believes the law should have been, even though it previously accepted Ireland’s treatment of Apple. As a result, the sovereignty of EU member states and the certainty of the law in Europe are put into question. More specifically, Ireland’s reputation as a tax haven would be damaged because the integrity of its tax system is being challenged.” *

” …[d]isregarded Irish Tax laws …” – That’s cute that is.

Is our sovereignty now so reduced that an un-elected and slightly accountable Commission decides what it is? Has Macron changed the EU signage yet? He easily dodged around Mme Le Pen, but AfD is another matter entirely. But sure, – “Carry on regardless!”.

” …[I]reland’s reputation as a tax haven would be damaged…” Damaged? What need is there for taxation law or financial regulators when you have Tax Havens what are beyond the national law and a regulators reach? If we managed it thus far – then I am confident that we will overcome any future ‘obstacles’ to our havenly status.

Multinationals and global financials are ‘ethics-free’ zones. They make obscene levels of profit – but leave precious little behind. Grains for the sparrows! Their CEOs spout unctious crap and lip-service to social matters, arrange glad-handing and back-slapping photo ops with Prime Ministers, Presidents and Taoisigh – whilst making grandiose public displays of dropping some small change in the local begging bowls. But when their time is up – they walk away, leaving us locals to clean up the Superfund sites.

The iPhone X looks like being a very expensive lemon. Maybe Apple had better buy-in some more of its shares to keep the value up. That 13 bill they ‘owe’ us looks like it might come in useful after all.

* [Barrera, R and Bustamente, J. (2017): ‘The Rotten Apple: Tax Avoidance in Ireland’. p8 -9].

Permit me a quiet skeptical smile when I see Friedman’s radical individualist free(sic)market ideology used in an ‘€thical’ discussion. This nonsense continues to be pervasive in U.S. economic thinking … to the benefit of the favoured few … the many being considered too ‘subversively’ collectivist and hence leaning towards being ‘communistic’. Back to Vienna and the 1930s … !!

Friedman, M. 1970, September 13. “The Social Responsibility of the Firm is to Increase its Profits.” The New York Times.

“But the doctrine of “social responsibility” taken seriously would extend the scope of the political mechanism to every human activity. It does not differ in philosophy from the most explicitly collectivist doctrine. It differs only by professing to believe that collectivist ends can be attained without collectivist means. That is why, in my book Capitalism and Freedom, I have called it a “fundamentally subversive doctrine” in a free society, and have said that in such a society, “there is one and only one social responsibility of business–to use it resources and engage in activities designed to increase its profits so long as it stays within the rules of the game, which is to say, engages in open and free competition without deception or fraud.” (Friedman, 1970)

I don’t have time to unpack the numerous social theoretical, philosophical and economic flaws in this trumpian piece of influential ideology. Have fun …

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