Rundale

By Conor McCabe

On 10 September 2024 the European Court of Justice (ECJ) upheld a decision by the EU Commission that the Irish State had given the US company Apple Inc illegal state aid over a twenty-two year period in the form of favourable tax rulings. The company was ordered to pay Ireland €13.8 billion in lost revenue. These funds had been sitting in an escrow account since 2018 while the Commission’s decision was under appeal. Ireland spent eight years fighting against this decision, arguing that no preferential treatment was given to Apple. The ECJ’s decision, however, was final and emphatic. Ireland was, and is, under any reasonable definition of the phrase, a tax haven, and while the story has moved on to how Ireland will spent these seemingly unwanted billions, the case itself contains multitudes. It has the potential to illuminate its surroundings. These include truths about the actually existing economic class relations within the Irish state, their colonial mutations, and how historical myths and legends are used to convince the world they do not exist.

The Apple Tax Case

The Apple tax story went public on 20 May 2013 when the US Senate Permanent Subcommittee on Investigations found that Apple had “used a complex web of offshore entities – including three foreign subsidiaries the company claims are not tax resident in any nation – to avoid paying billions of dollars in U.S. income taxes.” These subsidiaries were based in Ireland but “were not tax residents of Ireland, where they are incorporated, or of the United States, where Apple executives manage and control the companies.” It also noted that one of the subsidiaries “has paid no income taxes to any national tax authority for the past five years.” Peter Oppenheimer senior vice president and chief financial officer of Apple told the Subcommittee that the company was close to bankruptcy in 1997 and that as part of its restructuring it consolidated its European post-tax income into two Irish subsidiaries. The tax structures these companies operated under meant that Apple effectively paid no tax on its income from European sales. Finally, in relation to any tax that was due to the Irish Revenue Commissioners, Apple said that “Since the early 1990s, the Government of Ireland has calculated Apple’s taxable income in a way to produce an effective rate in low single digits… since 2003 it has been 2 percent or less.” 

Three weeks after the hearing the European Commission wrote to the Irish Minister for Foreign Affairs, Eamon Gilmore, requesting information on the practice of tax rulings in Ireland, and in particular any rulings related to two Apple subsidiaries: Apple Sales International (ASI) and Apple Operations Europe (AOE). On 7 March 2014 the Commission informed Ireland it was investigating whether tax rulings in favour of Apple companies constituted state aid, setting in motion a two-and-a-half-year investigation into the relationship between Apple and the Irish state.

The Irish government, for its part, denied any wrongdoing. “I don’t want to be the whipping boy for some misunderstanding in a hearing in the US Congress” said the Irish Minister for Finance Michael Noonan, adding “we can’t tax [Apple’s] profits worldwide.” Nor did it agree that its arrangements with Apple in any way constituted state aid. “We believe that our legislation is robust” said an Taoiseach Enda Kenny, and “the application of that legislation is ethical and we will be prepared to defend that very strongly in the event of any further statement or requirement from the European Commission.” 

Despite claiming that it did nothing wrong, Ireland changed its tax rules in 2015 so that it was no longer possible for a company to be registered in Ireland and not resident for tax purposes anywhere in the world. The Senate hearings had been a source of acute embarrassment and unwanted attention. This was compounded in July 2016 when US Economist Paul Krugman labelled Ireland’s national accounts “leprechaun economics” in a tweet after the country registered a 26 percent growth in GDP for 2015. The phantom economic activity –  involving nothing but the shifting of paper – had occurred after a number of tech companies relocated their Intellectual Property (IP) assets to Ireland for the purposes of tax avoidance. This was in part the result of a series of tax inversions that year, as well as the ongoing effect of aircraft leasing where the assets were registered in Ireland for tax purposes only. It led Ireland’s Central Statistical Office (CSO) to create a hybrid measurement of economic activity known as Modified Gross National Income (GNI*). It has no official standing as a measurement outside of Ireland. 

Ireland’s repeated claims not to be a tax haven were dealt a further blow on 30 August 2016 when the EU Commission decided that Ireland had made two tax rulings, in 1991 and in 2007, that gave Apple “a significant advantage over other businesses that are subject to the same national taxation rules” and that as a consequence these rulings constituted state aid. It said that “Ireland must now recover the unpaid taxes in Ireland from Apple for the years 2003 to 2014 of up to €13 billion, plus interest.” 

The European Commissioner for Competition, Margrethe Vestager, made no secret of the motivation behind the case. “We are doing this because people are angry about tax avoidance” she said; and although the Commission could not directly challenge Ireland over its tax avoidance regime, state aid rules were a way of doing “something different within the system we have. Something that means no change to legislation or voting systems, but a change in attitude that acknowledges that people across Europe are angry.” 

Three years later, the General Court of the European Union (GCEU) annulled the Commission’s ruling on the basis that it “did not succeed in showing to the requisite legal standard there where was an advantage [to Apple] for the purposes of [state aid rules].” The Court rejected Ireland’s argument that the Commission was engaged in de facto tax harmonisation by bringing the case, saying that the case had merit; however, the onus was on the Commission to prove that Apple had received a tax advantage that was outside the normal rules of Irish taxation and on this point they failed. The GCEU drew upon Irish case law – in particular S. Murphy (inspector of Taxes) v. Dataproducted (Dub) Ltd [1988] – to conclude that “the Commission erred, in its primary line of reasoning, in its assessment of the provisions of Irish tax law relating to the taxation of the profits of companies that are not resident in Ireland but which carry on a trade there through a branch.” In other words, Ireland may have given Apple a tax advantage in international terms, but it was not one that was out of line with the Irish tax code. In effect, Ireland’s position as  tax haven won the case for Ireland and Apple. The “non-taxation of profits is due to a mismatch in the sovereign taxation system” argued the Irish government, “and is not relevant for state aid purposes.” Ireland had prevailed by arguing its tax haven status, and the GCEU accepted the points. The Commission appealed this decision in 2021 and on 9 September 2024 the ECJ unequivocally rejected the GCEU’s decision, meaning Ireland was not only a tax haven but had given Apple illegal state aid to the tune of €13.2 billion.

Colonial Mutations

The system that allowed Apple to form companies in Ireland that were effectively stateless for tax purposes did not develop overnight. The Apple case dealt with tax rulings from 1991 and 2007, and were themselves built upon tax advantages accorded to the company when it first arrived in Ireland in 1980. The case opens up over 50 years of tax law in Ireland and crosses multiple governments and generations.

The logic of the Irish tax code that sees multinational tax avoidance as a public good is institutional, which in part explains its longevity. Indeed, Ireland’s corporation tax regime has become almost imbued with a religious fervour. “Our corporate tax rate is sacrosanct” said the Irish Minister for Health James Reilly in 2012, with the Irish Banking Federation making the same comment in 2015. The reasons for this attachment are historical, with successive Irish governments pointing to Ireland’s corporate tax regime as the reason for the country’s prosperity. 

The need for foreign direct investment to “kickstart” Irish industrial growth via tax incentives is usually explained as a result of the country’s “backward” agricultural economy in the 1950s. However, in 1952 Ireland was in the top five of European states in terms of trade openness – with a more open economy than France, Germany, the UK, Italy, Sweden or Austria. This openness, though, had a structural imbalance in that its foreign trade was dominated by Britain. Between 80-85% of all exports and imports were with Britain alone – an ongoing legacy of its colonial past. 

At the same time there were huge issues with the Irish economy – not least massive emigration and frustratingly stagnant job growth. There was little state investment and the emerging welfare state was a pale shadow of what was happening in other European states. Furthermore, Ireland imported more than it exported so its balance of payments was almost constantly in the red. On top of this it was a part of the Sterling area with only a nominally-independent currency, which meant it could not devalue its currency to make exports cheaper. Nor would the state borrow to invest to increase productivity, which was desperately needed in agriculture, the state’s largest (and largely undeveloped) export sector. Ireland’s private banks refused to issue loans at affordable rates, preferring to transfer funds to Britain instead. This left it with the option of internal devaluation – in other words austerity – to address the balances of payments issue by effectively cutting wages and employment to lower demand for imports, along with use of selected tariffs under OEEC rules. Both the OEEC and the World Bank were clear as to what Ireland should do to address its balance of payments issue – borrow to invest and build up indigenous companies as exporters. 

However, the Irish state was not ready nor willing to take on the banks, or consider a more flexible currency relationship with Sterling, or even confront the conservative, risk-adverse cattle ranchers who were wedded to the Shorthorn breed of cattle for milk and beef production. The move to “import” exporters through tax breaks and grants was seen as a way of squaring this circle. The foundation myth of an economically closed Ireland saved by Séan Lemass and TK Whitaker is there to mask the mutated colonial class relations in Ireland in the 1950s – ones that are still at play today as seen with Apple and Ireland as a tax haven.