Illegal State Aid

In August 2016, news broke that Ireland had been offering illegal State aid to its leading multinational corporations, namely Apple Inc., who were being called upon to repay €13bn. In a statement on the revelation, the European Commission ruled that Ireland had allowed Apple to pay substantially less tax than other businesses, in breach of international law, and Ireland was left to collect the illegal aid. The story made international headlines as one of the leading cases of tax justice, giving the Irish government the opportunity to gain some much-needed €13bn in capital that could be redirected into an increasingly fractured public service sector.

Commissioner Margrethe Vestager, in charge of competition policy, said: ‘Member States cannot give tax benefits to selected companies – this is illegal under EU state aid rules. The Commission’s investigation concluded that Ireland granted illegal tax benefits to Apple, which enabled it to pay substantially less tax than other businesses over many years. In fact, this selective treatment allowed Apple to pay an effective corporate tax rate of 1 per cent on its European profits in 2003 down to 0.005 per cent in 2014.’ The result was clear cut and left no space for manoeuvring, or so we thought.

The Legal Challenge

The positive mood among much of the wider public was quickly quashed when the Government came out and said that they would be contesting the ruling by Europe in court. Suddenly a division began to form; those critical of the European project found themselves in a position where they welcomed the government for taking action against the fractured institute, while others looked on in outrage at the decision. The decision to not accept the money was astutely defended as Fine Gael Ministers lobbied their Independent Alliance counterparts who were hesitant to follow suit. They also feared that alienating Apple would cause Ireland reputational damage and put off other multinational technology companies from investing in the country, and using it as their European headquarters. Speaking ahead of a cabinet meeting to decide a final position on the issue, Minister for Finance, Public Expenditure and Reform, Paschal Donohoe, said he believed ‘strongly that what we need to do here is to appeal this ruling, but before we get to that point, [the] cabinet needs to first understand this matter, and that’s what we’ll be doing.’

The case fell out of public interest until the release of a recent State report, which was carried out by Seamus Coffey, an economics lecturer and Irish Fiscal Advisory Council member. While the terms of reference didn’t specifically mention Apple, it looked at Ireland’s tax transparency and investigated if any one company was given preferential treatment. Responding to the report, Minister Donohue said that ‘Apple may have provided some of the context to this report but the terms of reference did not pay any particular reference to any particular case and from the work Seamus has done. He concludes that there is no evidence to suggest that Ireland offered any preferential tax treatment to any one company.’

The Legal Costs

The government’s litigation costs are coming out of the taxpayer’s pocket. The cost of this appeal will continue to rise, with the State showing no signs of reneging on their position. Given the current crisis experienced across the streets of Dublin, Cork and other densely populated areas, such thoughtless spending of tax payer’s money must be stopped immediately. The latest figures for homelessness across Ireland show 8,000 people are in need of accommodation, 3,000 of whom are children. Minister for Housing, Eoghan Murphy, has indicated ahead of Budget 2018 that the funding necessary within the upcoming budget to deal with the housing crisis might not be available; a change in Ireland’s attitude to tax law could be the solution. The cost of fighting the State’s legal battles alone could pave the way for investing in infrastructure within communities that are in strong demand for social and affordable housing.

If the appeal were to be dropped, and Ireland’s case is successful in retrieving the €13bn, a precedent for tax justice would be set across the world which would see countries finally in a position to radically reform tax havens. It would enable access to significant streams of revenue which could be utilised by public services to tackle the adverse crises we are facing today. The result of affairs thus far has been due to structured policies that have proven incapable of adjusting to adversity. For Ireland to become a great little country to do business in, we must dismiss our reputation as a tax haven.

Callie Cawley – Business & Law Editor