Confusion reigns about who is in charge of tax policy in Europe following the European Commission’s (EC) decision at the end of August that Ireland must recover €13bn from Apple. This is to make good the amount by which the EC alleges Irish tax authorities “substantially and artificially” reduced the company’s tax burden in Ireland, amounting to illegal state aid.

“This decision sends a clear message: member states cannot give unfair tax benefits to selected companies,” said EU commissioner Margrethe Vestager.

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Double appeal

Unsurprisingly, Apple immediately announced that it would appeal the EU decision in the European Court of Justice. More surprisingly, Ireland also announced that it would appeal against this unexpected bonanza.     

“This is necessary to defend the integrity of our tax system, to provide tax certainty to business and to challenge the encroachment of EU state aid rules into the sovereign member state competence of taxation,” the government said in a memorandum. 

Martin Shanahan, CEO of IDA, Ireland’s foreign direct investment agency, says Ireland collects tax on business activities in Ireland, and that it is entirely contradictory to expect it to collect tax that may be due elsewhere. “There is no special deal for Apple. We have applied the law pertaining at the time evenly and we can’t be the collector general for the rest of the world,” he says.

Reputational damage

Joe Tynan, who heads PricewaterhouseCoopers’ (PwC) tax practice in Ireland, says there is concern about the message the decision sends, at a time when all multinationals are facing increased scrutiny over tax avoidance.

“I think there was damage to Ireland’s reputation from the ruling because of how the commission articulated it: essentially, that Ireland facilitated tax evasion,” he says.

Philip Andrews, a partner and state aid expert at Dublin law firm McCann Fitzgerald, says the decision raises uncertainty about who is in charge of tax policy: the EU or the national government. “This case involves a significant expansion of the scope of state aid, and if this interpretation stands, it will stymie to an extent FDI into Ireland, because there will be uncertainty in respect of future tax arrangements that may be made to facilitate FDI,” he says.

Optimism persists

Still, Mr Andrews does not expect a sudden withdrawal of FDI, despite some US investors reviewing their tax exposure. And Mr Tynan believes Ireland’s strong track record as an FDI destination will continue to attract US investors.

Meanwhile, IDA’s Mr Shanahan says existing investors are not showing significant concern, and he maintains that Ireland has had significant investment since the decision, with more announcements planned. “It will not impact Ireland’s offering. It is the same today as it was before the decision, and all the other elements remain the same,” he says.