Why Ireland’s Government Doesn’t Want Apple’s Money

August 30, 2016, 4:53 PM UTC

Most Treasury chiefs across the world would be pretty pleased if they just got a court ruling allowing it to collect $14.5 billion in back taxes. Not so Michael Noonan.

Ireland’s finance minister is so angry that he’s willing to fight the European Commission all the way through the courts for the right not to collect the taxes that Apple supposedly avoided over the last 12 years. Darn it, he’s already spent over 670,000 euros ($750,000) of taxpayers’ money in fighting the Commission. Why the ingratitude?

It’s not like his voters or his cabinet colleagues don’t want the money. After six years of austerity imposed as part of Ireland’s 2010 bailout, Ireland’s public sector in particular is gasping for it.

Moreover, Noonan is going to get it in the neck from his rivals if he doesn’t take the money. Pearse Doherty, the finance spokesman for Sinn Fein, which preaches an idiosyncratic cocktail of nationalism and left-wing populism, called on the government not to appeal the ruling, telling the newspaper Anphoblacht: “There’s an irony here when we see an Irish Government challenging the European Commission when they actually bowed down to the same Commission during the period of austerity and bank bailouts.”

“Many people will be mindful that they themselves will be taken before an Irish Court because of their failure to pay water charges, yet this same Government are willing to go to court to defend Apple,” Doherty said.

Sinn Fein would love it to be that simple. However, even its Marxist old guard would probably have to accept that the ruling is a devastating blow to a country that has thrived for decades on attracting foreign investment through its favorable tax regime: the stock of foreign direct investment in Ireland at the end of 2014 was 311 billion euros ($350 billion), or 165% of GDP. Facebook and Google and many others have their European headquarters in Ireland, due mainly to its 12.5% headline rate of corporate income tax—the second-lowest in the EU.

If Noonan now enforces the Commission’s ruling, it will send a chilling message to other companies that have either invested in Ireland in the past, or were thinking of doing so in the future.

Small wonder that Noonan told state broadcaster RTE that: “It is important that we send a strong message that Ireland remains an attractive and stable location of choice for long-term substantive investment.” He said a challenge was needed “to defend the integrity of our tax system, to provide tax certainty to business, and to challenge the encroachment of the EU state aid rules.”

That second half of Noonan’s statement is important. For although the Commission zeroed in on what it thought it to be a very specific abuse of Ireland’s tax code, the Irish government is clearly afraid that this ruling will be the thin end of a wedge that ends in its complete loss of sovereignty over setting its own tax rates.

Until this year, such sovereignty hadn’t seemed in danger: after all, the government had successfully resisted the attacks on its tax code during the 2010 bailout negotiations, when it was at the mercy of France and Germany. The two countries had the best opportunity in years to stop Ireland luring away investment—and budget revenues—by “racing others to the bottom.” At that time, the government of Taoiseach Enda Kenny had successfully argued that its tax code was the only thing keeping the Irish economy alive—and thus the only way the creditors would ever see their 78 billion euros in bailout loans again (to say nothing of another 130 billion euros and more lent to Irish banks by the ECB at the height of the crisis).

But times change. And even though it happened years after the alleged offense, the U.K.’s decision to leave the EU puts today’s ruling in an entirely different light. As long as the U.K. was part of the EU, it was a waste of everyone’s time and energy to even propose the greater centralization of powers over tax in Brussels. With the Brits gone, the Irish have lost their biggest protector. What was impossible becomes possible (at least if France and Germany agree on an approach that somehow suits them both, which admittedly remains a tall order).

The Commission’s press release itself contains a hint of where the first attack on Ireland’s tax sovereignty could come from.

“In fact, the tax treatment in Ireland enabled Apple to avoid taxation on almost all profits generated by sales of Apple products in the entire EU Single Market. This is due to Apple’s decision to record all sales in Ireland rather than in the countries where the products were sold. This structure is however outside the remit of EU state aid control. If other countries were to require Apple to pay more tax on profits of the two companies over the same period under their national taxation rules, this would reduce the amount to be recovered by Ireland.”

In other words, the Commission is inviting other member states to calculate how much they may have lost in tax revenue as a result of the alleged violations, and to claw it back from Ireland. That alone is good reason for Noonan to challenge the ruling. The last thing he or any Irish government wants is to establish that kind of precedent.

At least Noonan’s Fine Gael party has some support from Fianna Fail, the party that has ruled Ireland for most of the last century (perhaps unsurprisingly, given that a string of Fianna Fail governments devised and presided over the said scheme for years).

“The Commission has opened the door to other countries including the U.S. to seek a slice of the 13 billion euros,” finance spokesman Michael McGrath said in a press statement. “It would be deeply unwise of Ireland to make any plans for funds that may not even materialize in reality.”

CORRECTION: The original version of this article incorrectly stated that Ireland’s corporate tax rate was the lowest in the EU. That honor is actually Bulgaria’s.