Tuesday 25 October 2016

Kenny playing dangerous game in war with EU over Apple tax

Published 06/09/2016 | 02:30

The shock that greeted the EC decision in Government circles is hard to fathom given that, until recently, we were led to believe the Taoiseach was best buddies with his colleagues in Europe.
The shock that greeted the EC decision in Government circles is hard to fathom given that, until recently, we were led to believe the Taoiseach was best buddies with his colleagues in Europe.

The outraged response to the European Commission ruling against Apple is reminiscent of the reactionary hysteria that led to the Brexit vote in the UK. Listening to it would be disastrous.

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The shock that greeted the EC decision in Government circles is hard to fathom given that, until recently, we were led to believe the Taoiseach was best buddies with his colleagues in Europe.

Back in July, when some mutinous Fine Gael TDs were calling for Enda Kenny to step down as party leader, senior ministers were aghast at the prospect of an Enda-sized hole in our Brexit negotiating team.

"We need the certainty the Taoiseach can give us with his experience and his relationships," argued Education Minister Richard Bruton.

Those relationships were not in evidence last week when the European Commission announced, with no apparent warning, that Ireland had facilitated Europe's biggest ever tax-avoidance wheeze.

Perhaps it was this abandonment of Ireland by its erstwhile friends in Europe that prompted such an uncharacteristically fiery response from senior members of Government.

Explaining why Ireland will appeal the ruling, Mr Kenny said it was "about our sovereignty and people" and suggested the EC was trying to "ingratiate itself with more powerful countries than ours".

Finance Minister Michael Noonan was even angrier, channelling his inner Churchill to say the State would not be bullied by envious EU rivals and would fight them "at home and abroad and in the courts".

I can't have been the only person to recall that the last time the Irish people were "called to patriotic action" it was to bail out the banks at the behest of the EU, with nary a whimper of complaint from anyone in government.

Samuel Johnson was clearly on to something when he said, "patriotism is the last refuge of the scoundrel", cynically employed by politicians here whenever they need to make the people swallow an unpopular decision.

Patriotism is the reason we had to stump up €64bn for the banks and also the reason we must reject €13bn plus interest from the richest corporation in the world.

The Government, in pitching its objection to the EC ruling in divisive and militant language, is playing a dangerous game. Remember, when Brexit is finally negotiated, we will be imploring the same countries the Government is now smearing to recognise our special relationship with the UK.

I'm no diplomat, but denigrating EU member states as greedy back-stabbers plotting to destroy our economy seems an odd strategy to employ if we want the terms of any Brexit deal to be remotely favourable.

Throwing petrol on this dumpster fire, some commentators have used the EC decision to argue Ireland's path to future prosperity is to align itself with corporations against the EU.

This is the same guff Brexiters were peddling when they told voters that casting off the shackles of suffocating EU bureaucracy would allow thrusting captains of industry to get on with the business of making everyone rich.

While the economic cost of Brexit has yet to be determined, a stark document published by the Japanese at the weekend, warning 200,000 British jobs in Japanese firms are in danger if access to the single market is lost, suggest the consequences could be dire.

The lesson for Ireland from this is that multinationals are not just here for our low corporate tax rate - or, as Apple CEO Tim Cook patronisingly suggested last week, for the people and the craic - they are here because we are a gateway to Europe.

So, giving the EU the finger is not really an option, unless we have some kind of nationalistic death wish.

Instead of facing a Hobson's choice between the EU and multinationals, it is possible to argue an appeal is in the best interests of the State without resorting to emotive language and misleading nonsense.

First, the Irish establishment needs to get its story straight. While senior politicians are reacting as if the EC's oversight of aspects of our tax regime is unprecedented, it's not.

Earlier this year, the European Court of Justice (ECJ) upheld an EC ruling that €10m in tax breaks to one Limerick company, Aughinish Alumina, constituted illegal state aid.

Suggestions the EC has some kind of peculiar vendetta against Ireland's tax regime are also hard to maintain, given it recently issued negative rulings about tax arrangements for corporations located in Luxembourg, Belgium and the Netherlands.

Instead of foaming at the mouth about sovereignty and patriotism, the Government should simply say it is appealing the judgment to get definitive legal clarity about the status of the tax advice from Revenue.

Although the full judgment has yet to be published, a preliminary ruling in 2014 suggested the problem with Apple's tax structure was that its taxable income had been "reverse-engineered" with no apparent objective economic rationale.

The Government will presumably want to defend the manner in which this deal was struck, especially if other companies benefited from equally subjective tax agreements.

An appeal is also required to settle any confusion about which tax authority is entitled to the €13bn.

Last week, the EC suggested other EU member states, as well as countries in the Middle East, Africa and India, could be due a slice of the loot, raising the spectre of the State having to defend a multiplicity of legal actions.

An appeal to the ECJ would allow countries, which feel they have been cheated out of tax revenue, to throw their hat into the ring and make a case for a cut. Ultimately, this could save us money and ensure the €13bn isn't tied up in legal disputes for another 20 years.

The Government, in conflating the EC ruling with an attack on our corporate tax regime, is not reassuring investors. Rather, it is suggesting to them the entire edifice could be torn down at any moment if the EC expands its investigation.

There are measured, rational arguments for opting for an appeal. The Government should use them. And, if this administration is so averse to accusations of facilitating tax avoidance, it should close down any potential loopholes that could allow corporations to do just that.

Irish Independent

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