The European Commission investigation into Apple’s tax affairs in Ireland is part of a wider political game that has yet to play out fully.
The European Commission’s preliminary finding that Ireland’s tax arrangements with Apple constituted state aid, are hardly surprising. If they didn't have reason to believe that, why would they conduct the investigation?
The battle for the Irish government is to try and argue in the coming months that it wasn’t. It may be a futile exercise anyway. The arrangements with Apple are historical and represent a case from the past rather than something that might begin with another company now.
The two big issues, when all this is over are: Will the European Commission insist that Apple pay back-tax on the profits that it believes should have been paid, and what will the wider damage to Ireland’s reputation be?
Apple might well challenge any such payment of back taxes and it is difficult to predict what the final outcome of that would be. It could lead to a one off historical windfall for Ireland, potentially worth billions of euro. In theory, that might be partially offset by whether Ireland could be fined in some way by the EC for providing this illegal aid. Again, further legal challenges might ensue for years.
The damage to Ireland’s reputation has already been done. If the EC makes a finding 12 months from now that in the case of Apple, the agreed tax structure did constitute illegal state aid, it won’t make that much difference. The issue for the government is to weigh up how many concessions it will make in the coming 12 to 18 months around tax arrangements that still exist. Give away too much, and we will gain in credibility but lose out in inward investment.
Give away too little and we could continue to ship reputational damage. Ireland doesn’t want to be seen to jump first with concessions and find that it has jumped alone and undermined its competitive advantage.