$13bn Irish Apple question with no answer

It's the €13 billion question that no one in Ireland wants to answer.

If our corporate tax rate is 12.5 percent, as the Irish government says, how did Apple end up paying less than one percent corporate tax on its operations in Ireland over two decades? These operations included the two Apple companies registered in Ireland through which the company routed vast global profits.

The EU has told us that in 2003 Apple paid just one percent in corporate tax here. In 2011 that had fallen to 0.5 percent tax and it actually went down further to an even more derisory 0.005 percent in 2014.

Even if we assume that over the 20 years the annual average was closer to one percent than 0.005 percent, it is still ridiculous when 12.5 percent is supposed to be our corporate tax rate. So what's the explanation?

We hoped we would get the answer last week when the Dail was recalled for a one day special sitting (three weeks early) to discuss the report of the EU Commission's investigation into Apple's tax affairs here. That report, which exposed us internationally as a tax haven, concluded that Apple owed Ireland €13 billion plus interest in unpaid taxes.

We followed the Dail debate last week eagerly waiting for the explanation to the simple question: If the rate is 12.5 percent, how did Apple pay less than one percent?

Taoiseach Enda Kenny rose to address the Dail and put on his most serious face. Apple had paid all taxes due in Ireland, he said. There was no illegality. There was no special deal with the Revenue Commissioners.

The EU report was an attack on Ireland's 12.5 percent corporate tax rate, which bigger countries wanted to undermine. Ireland had done nothing wrong.

Apple had done nothing wrong. Etc, etc. Apple boss Tim Cook could not have put it better.

But the unanswered question hung in the air. There was still no explanation of how the 12.5 percent had become less than one percent.

Kenny was followed by the leader of Fianna Fail, Micheal Martin, who tried to sound even more outraged than the taoiseach. It was nothing to do with competition rules and giving Apple an unfair advantage, he said, as the EU was claiming. It was an attempt to interfere with our right to set our own taxes. It was all about attacking our 12.5 percent corporate tax rate.

The minister for finance and other heavyweights chimed in along the same lines. Ireland had to appeal this EU decision, they said, because it was claiming that for years Ireland had given an unfair (and therefore illegal) competitive advantage to Apple by not collecting taxes that should have been paid. Our international reputation is at stake, as is our sovereign right to set our own tax rates, they said.

Again and again our 12.5 percent corporate tax rate was mentioned. But no one explained how for 20 years or more Apple was able to magically turn 12.5 into one.

Surprisingly, it was the same when Sinn Fein and a few independents opposed the government's decision to appeal the EU findings to the European courts. They said that Ireland should take the €13 billion (which will be close to €20 billion when interest is added on) and spend it on housing, hospitals and so on.

We could transform the country, they said. We could end homelessness and hospital waiting lists. We could do so much good.

But they never explained how Apple changed 12.5 into one. In fact, they did not seem to be interested. All that mattered was taking the money and spending it.

So throughout the day-long debate in the Dail last week, there was no answer to the €13 billion question. Nor was there any answer in the days that followed, up to the time of writing.

What we got instead was a repeated insistence by the government that nothing illegal was done, that Apple paid all its taxes, that Ireland did not break competition rules and that our 12.5 percent corporate tax rate is under attack.

Over and over, we got the same line about our precious 12.5 percent corporate tax rate. It was enough go make you scream.

IF THE RATE WAS 12.5 PERCENT, WHY WAS APPLE PAYING ONLY 1 PERCENT?

So since no one else was willing to answer the question, this column will have to step up to the plate.

First of all, the government says that Apple paid all its taxes here and that nothing illegal was done. But if the rate was 12.5 percent, how could it be that Apple was able to pay ALL its taxes here by coughing up only one percent? And how was that legal?

At the very least, it does seem contradictory. What the government does not say is that Apple was able to do this legally under Irish law because Ireland had deliberately set up a structure that facilitated Apple dodging billions in tax on much of its global operations.

Just because something is legal does not mean it is moral or justifiable. What Ireland was doing over two decades was enabling Apple to dodge tax on much of its global profits, tax that should have been going to many other countries as well as Ireland.

We were a party to what was effectively theft on an international level. Yet no apology has been forthcoming from the Irish government for this, much less any sign of contrition.

The details of how our dodgy tax set up worked were outlined in a 16-page Department of Finance document issued to members of the Dail before last week's debate and titled “Explanatory Memorandum - Dail Debate of Government Motion on the Apple State Aid Case.” Without any embarrassment it explains how Apple was able to use our tax structure to pay almost nothing on its vast profits -- and how this was legal. It's available online and is worth reading.

As you probably know, Apple set up two "head office" companies here which although registered in Ireland were not tax resident here -- or anywhere else, for that matter. Apple agreed with the Revenue Commissioners that tax was payable in Ireland only on the proportion of its profits generated directly by activity in Ireland, mainly by Apple in Cork, and not on the vast global profits that were being routed through its two "head office" companies here.

This was set out in two rulings by the Revenue Commissioners in 1991 and 2007 and was a green light to Apple to handle its tax affairs as it did. It confirmed that what Apple was doing was legal, under Irish law.

In that sense, as the taoiseach and the minister for finance keep on saying, Apple did nothing illegal here and paid all its taxes here.

What they don't say, of course, is how much tax Apple actually paid and what percentage that was of the overall Apple profits that were booked in Ireland, whether they were from Irish or global operations. They can't reveal that, they say, because an individual company's tax affairs are confidential!

All they can say is that Apple "paid all the tax it owed here." And they repeat that mantra endlessly.

The EU investigation into Apple's tax affairs here was aimed at assessing whether Ireland's tax treatment of Apple equated to giving state aid to a particular company, which is unfair competition under EU rules and therefore illegal.

The Irish response to this is to insist that the tax arrangements used by Apple here were available to other companies as well and therefore cannot be seen as giving an unfair competitive advantage to one company.

How many wrongs does the Irish government think make a right? How many other multi-national companies here were doing the same thing until we caved into international pressure and closed the "Double Irish" tax scam a couple of years ago?

We don't know, because the Revenue Commissioners are not saying. It's confidential, you see.

The Irish government is now claiming to be in the forefront of international efforts to set up new arrangements to get multi-nationals to pay their fair share of tax. But it's obviously a case of having to, rather than wanting to. We were up to our necks in helping multi-nationals to dodge tax for years, so it's a bit much now to be pretending that we are leaders in the struggle to get them to pay up.

What our politicians have yet to realize is that to ordinary taxpayers here, squeezed dry by the system, it doesn't matter whether Apple paid "all" of the taxes it owed here if it turns out that this amounted to less than one percent of profits instead of the 12.5 percent that is supposed to be the corporate tax rate. It doesn't matter how you spin it -- that is a disgrace.

The government is doing all it can to confine this debate to whether what we did amounted to "state aid" which is the specific finding made by the EU investigation.

But what matters far more to taxpayers -- both here and in the various other countries where Apple avoided tax by routing profits through Ireland -- is what it has cost them. It's the billions that Apple have got away with.

Our 12.5 percent corporate tax rate is one of the lowest in Europe, although several other countries (like Britain) are now reducing their rates to the 15-20 percent range. Most taxpayers here can live with our low rate and probably agree that we need an advantage to attract companies to a small island on the edge of Europe. But what people here cannot stomach is that Apple would not even pay the 12.5 percent rate and instead paid only a tiny fraction of that.

Equally sickening for them is the attempt by our two main parties, Fine Gael and Fianna Fail, to conceal this in the Dail last week. Tax, as the government keeps saying, is the sovereign right of each EU country and is outside the remit of the EU.

But given the disgrace we have made of ourselves on the tax issue, effectively robbing other countries as well as our own taxpayers by enabling Apple to do what it did here, perhaps it is time we joined EU efforts to have a common approach to corporate tax which will force multi-nationals to pay their share. Clearly we're not up to doing it ourselves.