It’s an absolute dog’s breakfast. EU commissioner Margrethe Vestager’s ruling that Apple has to pay a € 13bn penalty to the Irish government for breaking rules against the provision of state aid is set to have ramifications way beyond Apple and the EU.
In an EU made nervous by Brexit, it has added another cause for jitters and uncertainty.
In the US the move has been deemed extremely hostile, threatening the relationship with the EU and adding to the uncertainty about completion of the ambitious Transatlantic Trade & Investment Partnership.
And in Dublin, where the latest pub game is figuring out what to do with the €13bn windfall, it has led to concerns that, free from EU strictures, Britain will set itself up as a more effective tax haven.
The ramifications don’t end there.
This is just the sort of high-profile case that the increasingly media-savvy tax justice campaigners thrive on.
By the time this bizarre case has wended its way through an extremely lengthy appeal process, we can expect global tax architecture to have changed beyond recognition.
The spotlight will not remain on Apple and Ireland — it will inevitably spread to other countries and other companies that have conspired to accommodate aggressive tax management strategies.
As the process plays out, Apple CEO Tim Cook and the Irish politicians will learn that, while a highly technical interpretation of the tax laws may support their actions, the public on whom Apple is dependent will not be swayed. They will sense a tax dodge and become increasingly irate. As the global economy continues to flounder, the details of this case will feed the growing antipathy to globalisation.
Typical of 21st-century trading patterns, the bulk of Apple’s products are made in low-cost Asian countries, while the bulk of its profits are attributed to largely US-based intellectual property.
The US$200bn-plus profits Apple has accumulated outside the US are based on a tax system that was not designed for the dramatic changes in global trade seen over the past 20 years.
Key among these changes have been the increased reliance on China, and more recently its neighbours, to provide cheap labour, and the attribution of large chunks of profit to intellectual property.
Dennis Davis, chair of the Davis tax committee, which has been tasked with assessing SA’s tax policy framework, says it might be time for countries to review their bilateral tax agreements with Ireland.
"There’s little point in SA doing this on its own; it has to be done by every country that has a double taxation treaty with Ireland," says Davis.
As Davis points out, the culprits in this particular scandal extend beyond just Ireland and Apple. They include every country that has a tax treaty with Ireland that has allowed the profits generated from the sale of expensive iPhones, iPads, MacBooks and all manner of glitzy accessories to be squirrelled away in a stateless company that pays no tax.
The profits on any Apple product sold outside the Americas were funnelled through an Ireland-based company into a stateless entity that paid tax at an effective rate of 0.005%up to 2014.
It was this that the EU commissioner deemed to be the provision of state aid to Apple. The €13bn penalty, which increases to €19bn with the inclusion of interest, is the commissioner’s estimate of the tax saved by Apple.
Davis would probably put the US, rather than Ireland, at the top of the list of culprits.
"The US is wholly culpable — their tax system encourages this sort of contrivance," he says.
The expected long drawn-out appeal process will have a wearying effect not on Apple’s finances, which seem unlimited, but on a public image that, given 21st-century consumer fickleness, is up against the sort of limits that international NGOs like ActionAid are adept at pushing.
For the Irish government it has been a huge embarrassment— not because of the image of a dodgy tax haven it gives rise to but because, in order to keep its side of the deal with Apple, the government is forced to appeal Vestager’s ruling.
And so, just days after news reports about the "deepening crisis in family homelessness" in Dublin, the Irish government said it wanted nothing to do with the €13bn that Vestager wanted to foist upon it.
The reality is that, despite its bizarre 26% GDP growth figure, Ireland’s social infrastructure is in a mess.
It has been devastated by several years of EU-imposed government cutbacks.
The €13bn would be very useful, though exactly how it could be spent is unclear, as there are EU restrictions on what governments can do with "windfalls".
And there is the matter of other countries, particularly the US, laying claim to the money.
The Vestager ruling, which goes to the very heart of Ireland’s so-called industrial policy, has also dealt a blow to the Irish psyche and the country’s determination to be a good EU member. So determined was it to promote this perception, it accepted the "tough love" measures imposed by the troika (European Central Bank, the European Commission and the International Monetary Fund) almost without complaint, unlike its rowdy crisis-colleague Greece.
Even those Irish appalled by their government’s tax strategy feel Vestager’s move is ill-timed. The country has not yet recovered from the 2008 financial crisis and is trying to work out how to deal with the pending exit of Britain, its largest trading partner, from the EU.
Economist David McWilliams says it’s time for Ireland to abandon the EU and throw its lot in with the US, which is its more natural ally.
It’s a dog’s breakfast of huge proportions.