Taxing times ahead, thanks to Europe's new Iron Lady
Published 25/10/2015 | 02:30
An Iron Lady is on the warpath.
Last week a new Iron Lady appeared on Ireland's radar. This one sounds even more scarey than the Lady who thwarted Irish ambitions for a United Ireland back in the Eighties. Both, coincidentally, carry the much-maligned name of Margaret. While Margaret Thatcher of Britain eventually conceded the Anglo-Irish Agreement, Margrethe Vestager of Denmark looks to be made of sterner stuff.
Margrethe Vestager is the European Competition Commissioner. She is threatening to put manners on Ireland's most powerful visitors, the multinationals. And on Ireland's government to boot. This Lady means business.
This is the woman whom the 'Economist' magazine has ominously nicknamed' the Enforcer ' and dubbed 'a tough cookie'. Not only has she recently taken on the mighty Google, but she has challenged Russia's Gazprom. She even wanted sanctions imposed against France for breaking European rules earlier this year. Today's Iron Lady is a giant killer.
On Wednesday, the 47 year-old Dane took an almighty swipe at Starbucks and Fiat. In the process she put the governments of the Netherlands and Luxembourg in the dock. She declared that both countries had been breaking the law when they had cooked up tax deals with the two global giants. They were indulging themselves in illegal tax avoidance.
No one cares too much about small beer offences in the Netherlands and Luxembourg. The two governments were ordered to collect a mere €20-€30m in taxes owed by the offending multinationals. Nevertheless, both countries have taken the hump and vowed to appeal the decision. So have Starbucks.
Next month the Iron Lady is likely to cause consternation. First in her firing line is online retailer Amazon, accused of an artificial royalties deal with the Luxemburg government.
Second target is Ireland: Madame Margrethe is widely expected to decide that Ireland's long-standing tax deal with Apple was illegal. Moreover, she is likely to order us to demand a few billion in back taxes from the US multinational.
Sounds like good news. A €2 billion windfall could be just the job in these tough times. Michael Noonan could buy a February election with that sort of a bonanza, courtesy of Apple.
Noonan has already committed to appeal any such adverse finding, now regarded as close to a foregone conclusion. He will head straight for the European Court of Justice, protesting, perversely, that he is not owed the money. And that he does not want it.
Last week government ministers began to shudder at the prospect of our mysterious deals with all our multinationals being opened up. Margrethe has shaken the whole basis of our cosy relationship with them.
The unwritten understanding that Apple and the cohort of foreign companies setting up in Ireland could invent their own profit figure - provided that they delivered the jobs to Ireland - was being rewritten. Europe had rumbled our antics.
A Department of Finance spokesman weakly repeated that this country had "no case to answer" on Apple, while Enterprise Minister Richard Bruton insisted that "I do not think we have a particular concern". Noonan has always affected nonchalance in the face of this threat.
Indeed the topic of US multinationals exploiting Ireland for profit-vanishing magic is an almost taboo subject in polite government circles. The dogs in the street know that big global players shift their profits out of the reach of the Irish taxman into untouchable tax-free zones in the Carribean. Politicians and the media here are reluctant to venture far down this unpatriotic, almost treasonous, road of challenging this activity. We need the jobs.
The UK media are not so gentle with the truth about Ireland's activities. On Wednesday, the Times summed up the looming tax crisis in terms that would spook the mandarins of Merrion Street.
It identified Ireland's problem: "Apple is being investigated for the sweetheart tax deal it had with Ireland from 1991 to 2007."
Two thirds of Apple's global profits for 2011 were attributed to companies registered in Cork. Apple Sales International, which until 2012 had no employees, paid taxes of $10m in 2011 on revenues of $22bn from non-US Apple activities, equivalent to 0.045 per cent. The Commission said that Apple paid just 3.7pc on non-US profits of $31bn in 2013. Apple said that it paid all taxes due.
We will almost certainly lose the Apple case. That will open the floodgates. Google, Facebook, Intel, Hewlett Packard, Dell and others will be nervous. If Apple is under the cosh they could be next for the microscope. The Irish Government and our Revenue Commissioners may have played footsie with all their tax manoeuvres, but they had never bargained for the mighty Margrethe.
Margrethe regards these deals as illegal subsidies. The Irish taxpayer is subsidising our ultra-profitable visitors by not taxing their profits. This has been going on for years.
All the evidence seems to support her claims. Ireland appears to be the worst offender in her sights.
She is acting on figures that showed Fiat (in Luxembourg) making 2012 profits of €896m with a maximum tax base of €2.8m, that in 2012 Starbucks' (Netherlands) income was a massive €1.08bn while it paid tax of a paltry €1m, that Amazon (Luxembourg) paid tax of €75m in 2013 on a turnover of €13.6bn, while in 2013 Apple of Ireland took the gold medal by paying a maximum tax of €20m on a global income of €25bn!
There is little point in Ireland remaining in denial, heads in the sand, waiting for Margrethe. There is every point in us taking the problem on the chin. We need the multinationals. We need the jobs and the spin-off benefits. We need a solution before Margrethe, the Enforcer, enforces one.
The Government should move fast. It should call in the Revenue Commissioners and demand to know the details of all tax arrange- ments with multinationals.
Margrethe has identified 'comfort letters' given by national tax authorities to multinationals as the culprits. Comfort letters wilfully encouraged companies to go ahead with these deals, now established as of dubious legality. In Ireland we call them 'confirmations'. Apparently, multinationals in Ireland seek 'opinions' from the Revenue on their tax planning and often require and are granted follow- up "confirmations" to give them comfort.
The Revenue is remarkably coy about this procedure. Last week, they told me that they did not categorise revenue 'opinions' into multinationals or any other headings, even though they only totalled about 100 annually.
No figures were available for 2013 or 2014. Nor would they give any breakdown of the number of "confirmations". I got the feeling I was moving into unwarm waters.
We still have time to pre-empt the progress of Margrethe. We do not want the multinationals to contemplate an exit from Ireland as the certainty they have enjoyed for so long is now being threatened.
There are mechanisms for us to approach them for a settlement of back taxes and to offer them future security.
We could reassure them that we will lower the future tax rate from 12.5pc to 5pc, but that the 5pc must be taxed on real, not make- believe, profits.
Some of our European colleagues would be upset that we were indulging ourselves in tax competition. Yet we could collect billions in back taxes, secure future income from a broader tax base and give the multinationals the certainty they need. The days of cloak and dagger taxation would be over.
We had better move fast to reassure our multinational base before Margrethe, the enforcer, sets the agenda. A second Iron Lady's not for turning.