Paul Sweeney in The Irish Times here.
Last week we wondered whether the General Court of the European Union would take a broad or narrow view of Apple Inc. In it’s state aid finding the European Commission took a narrow view. This is from the day the finding was announced:
As a result of the tax rulings, most sales profits of Apple Sales International were allocated to its "head office" when this "head office" had no operating capacity to handle and manage the distribution business, or any other substantive business for that matter. Only the Irish branch of Apple Sales International had the capacity to generate any income from trading, i.e. from the distribution of Apple products. Therefore, the sales profits of Apple Sales International should have been recorded with the Irish branch and taxed there.
The "head office" did not have any employees or own premises. The only activities that can be associated with the "head offices" are limited decisions taken by its directors (many of which were at the same time working full-time as executives for Apple Inc.) on the distribution of dividends, administrative arrangements and cash management. These activities generated profits in terms of interest that, based on the Commission’s assessment, are the only profits which can be attributed to the "head offices".
As we said last week, while the key decisions that drove ASI’s profits might not have been not documented in ASI’s board minutes they were made outside of Ireland. And here is segment of the courts’ ruling on this central matter:
(2) Decision-making by ASI and AOE
303 With regard to ASI and AOE’s ability to take decisions concerning their essential functions through their management bodies, the Commission itself accepted that those companies had boards of directors which held regular meetings during the relevant period, and reproduced extracts from the minutes of those meetings confirming that fact in Tables 4 and 5 of the contested decision.
304 The fact that the minutes of the board meetings do not give details of the decisions concerning the management of the Apple Group’s IP licences, of the cost-sharing agreement and of important business decisions does not mean that those decisions were not taken.
305 The summary nature of the extracts from the minutes reproduced by the Commission in Tables 4 and 5 of the contested decision is sufficient to allow the reader to understand how the company’s key decisions in each tax year, such as approval of the annual accounts, were taken and recorded in the relevant board minutes.
306 The resolutions of the boards of directors which were recorded in those minutes covered regularly (that is to say, several times a year), inter alia, the payment of dividends, the approval of directors’ reports and the appointment and resignation of directors. In addition, less frequently, those resolutions concerned the establishment of subsidiaries and powers of attorney authorising certain directors to carry out various activities such as managing bank accounts, overseeing relations with governments and public bodies, carrying out audits, taking out insurance, hiring, purchasing and selling assets, taking delivery of goods and dealing with commercial contracts. Moreover, it is apparent from those minutes that individual directors were granted very wide managerial powers.
307 In addition, with regard to the cost-sharing agreement, it is apparent from the information submitted by ASI and AOE that the various versions of that agreement in existence during the relevant period were signed by members of the respective boards of directors of those companies in Cupertino.
308 Moreover, according to the detailed information provided by ASI and AOE, it is the case for both ASI and AOE that, among ASI’s 14 directors and AOE’s 8 directors on their respective boards for each tax year during the period when the contested tax rulings were in force, there was only one director who was based in Ireland.
309 Consequently, the Commission erred when it considered that ASI and AOE, through their management bodies, in particular their boards of directors, did not have the ability to perform the essential functions of the companies in question by, where appropriate, delegating their powers to individual executives who were not members of the Irish branches’ staff.
And to repeat this is what we said on here in 2016:
Even if these companies are not deemed to be tax resident in Ireland can it be established that their profits should be taxable in Ireland? Is the presence of a branch enough to deem the profits of the parent taxable here?
There are a couple of ways of approaching this but the key aspect is the agreements granting the rights to use Apple Inc.’s intellectual property outside the Americas to these companies. All of the licensing and cost-sharing agreements were negotiated and signed in the US, at board meetings which took place in the US, and by directors and key decision-makers who were exclusively based in the US. None of the key risks, functions and assets that underpin the creation and ownership of the intellectual property had a connection with Ireland.
From Saturday’s The Irish Times, David McWilliams writes:
Luckily for us, there is no financial constraint for a craic bailout. The ECB has set interest rates to zero. The NTMA borrowed billions this week at negative interest rates. This means that money is free.
The State needs to spend when the private sector is saving, which is what is happening now. The country should issue a perpetual bond, as George Soros is advising the EU to do, or a 100-year bond as Austria did two weeks ago, to cover spending.
At zero interest rates and with the ECB ready to buy whatever the government issues, fiscal policy becomes monetary policy. This means the Government just issues IOUs, gets the money and can spend the money whatever way it chooses. A craic bailout should be first on the list.
And in the Sunday Business Post, Aidan Regan proposes:
Here’s how it works. The government issues a 20 year fixed interest rate bond that amounts to the equivalent of 10 per cent of gross national income. This equals around €30 billion. The Irish state could issue this type of long term bond tomorrow at effectively zero per cent. If you adjust for inflation, it would mean that the markets will pay the government to do it.
Taking this sum of money, the government would create a rigorously independent body to oversee the creation of a new national wealth fund. The board of the fund would employ various asset management experts to invest the money on behalf of the state. They would be mandated to generate a capital return of anything between 4-8 per cent per annum.
Basic mathematics would suggest that the probability of the Irish state generating a return greater than 0 is high. And anything above 0 means the state can pay off the debt while creating wealth and value for its citizens. If the compound interest return to the people’s wealth fund was 5 per cent, the Irish state could repay the debt issued to create the fund in less than 15 years. After this point, all capital returns go back to Irish society.
But more importantly, the state now owns the capital assets that it bought to generate the return. The Irish state has gone from being a debtor to a wealth owner. It has created value. If Apple or Amazon stocks go up, then so does the wealth of Irish citizens. This is because they now own a part of these profitable tech firms through their national wealth fund.
Guest post by Reamonn Lydon (Central Bank).
[Disclaimer: this blog post represents my personal views and not those of the Central Bank of Ireland or the European System of Central Banks]
The CSO has just released an experimental analysis of Occupations with Potential Exposure to COVID-19. This is useful data for anyone who wants to understand how the Covid-19 shock interacts with the structure and composition of employment. It provides important information on which sorts of occupations and workers have been most directly affected by the restrictions to limit the spread of the virus.
Using O*NET data on the task-related content of four-digit occupations, the CSO construct an Proximity index and an Exposure to diseases index. Here, I focus on the proximity index, although a similar analysis of the Exposure index would also be of interest.
Quoting from the background notes:
In the O*NET data “Respondents score their job on a scale of one to five where, for proximity, one indicates that the respondent does not work near other people (beyond 100 feet) while five indicates that they are very close to others (near touching) … The data is harmonised on a scale ranging from 0 to 100 by using the following equation: S = ((O-L)/(H-L)) * 100 where S is the standardised score, O the original rating score between one and five, L the lowest possible score (one) and H the highest possible score (five). Under this new classification, the standardised physical proximity measure is defined by:
0 – I do not work near other people (beyond 100 ft.)
25 – I work with others but not closely (for example, private office)
50 – Slightly close (for example, shared office)
75 – Moderately close (at arm’s length)
100 – Very close (near touching)”
The CSO has constructed a proximity score for 296 four-digit SOC10 occupations. Crucially, it then maps these to total employment, percentage female, over-55 and non-Irish using Census 2016.
Using employment weights, the median proximity score for all workers is 57.6; the mean is 61.8. The four digit occupation at the median is Sales related occupations not elsewhere classified. The lowest scoring occupation (least proximate) is Artists (21.5); the highest scoring is Paramedics (97).
The chart below shows the cumulative share of employment (y-axis) by proximity score (x-axis) for the characteristics provided by the CSO. The variation across charactistics is striking: female workers are more likely to be in ‘lower proximity jobs’, almost 60 per cent are below the median score for all workers. It is hard to pin-point a single occupation that contributes to this result for females, but a relatively higher concentration in occupations like Chartered and certified accountants, Cleaners and domestics and Administrative Occupations do stand out. By contrast, male, younger and non-Irish workers are all more likely to be in high-proximity jobs, with just 40 per cent below the median. The relatively higher share of younger workers on the Pandemic Unemployment Payment (PUP) – 41 per cent of under-25s are on PUP currently, compared with 21 per cent of over-25s – tallies with the observation that more of these workers tend to be in higher proximity occupations, and therefore more impacted by the Covid-related restrictions.
For those groups with a greater concentration in high-proximity jobs – that is, male, younger and non-Irish – there is a step-jump around 70. In terms of the occupations arround this jump, for males it includes sports and leisure activities, skilled trades, constrction and protective services. For non-Irish nationals, who make up around 15% of employment (in the 2016 data, it is closer to 20% now) it is a broadly similar set of jobs, but also including a range of food services occupations.
Finally, the CSO has also published the median annual earnings by occupation. Chart 2 shows the average of median annual earnings by occupation for each quartile of the proximty score distribution (weighted by employment). Higher proximity occupations tend to lower paid. For example, in the top 25 per cent of jobs by proximity score (which also happens to be a score at 75 or above), the average of earnings per occupation is around €33,500 (in 2016). The average for the bottom 25 per cent occupations (a proximity score of around 49) is €42,300. When we control for all characteristics such as female, share of over-55s and non-Irish by population, we find that going from the least proximate quartile score (49) to the most proximate quartile score (75) is associated with earnings being around 20 per cent lower on average.
Information on the task-related content of occupation is vital for understanding which sort of jobs are affected by the social distancing restrictions put in place to fight the Covid pandemic. Similar work in Adrjan and Lydon (2020) shows how countries with a higher concentration of ‘high-proximty’ employment experienced a larger negative shock to labour demand when the crisis first hit. This includes Ireland. Analysing the occupational breakdown from the CSO highlights that younger, male and non-Irish workers are more concentrated in ‘high proximity roles’. These roles are also lower paid on average. This provides crucial insight into who is most affected by the Covid shock, and what sort of policies might be put in place to help certain groups of workers.