Monday 18 March 2019

David McWilliams: EU is a thing of the past - our future is with an Atlantic Ireland

Tim Cook, chief executive officer of Apple, speaks during an event in Cupertino, California, in March 2016. Photo: David Paul Morris/Bloomberg.
Tim Cook, chief executive officer of Apple, speaks during an event in Cupertino, California, in March 2016. Photo: David Paul Morris/Bloomberg.

David McWilliams

The EU Commission's ruling on Apple is huge. It will redefine our relationship with the EU and it puts us on to a totally different economic orbit to the rest of Europe.

In the wake of Brexit, there is a political dimension to this that cannot be underestimated; either way, win or lose, it is a positive for Ireland and constitutes a huge opportunity. This is a battle between the future and the past.

The future is an Atlantic Ireland, an essential mercantile part of the global supply chain, home to the largest and most innovative companies in the world. This way lies prosperity.

The past is the EU Commission with its vindictive misunderstanding of the relationship between global commerce and an outdated notion of the nation state. This is history. We should not care a jot about what Eurocrats think of us.

The reputation that matters is the one inside the heads of the people who make the modern world economy spin, not the views of outdated bureaucrats who still see the world through the prism of countries and state aids. That is a typical 1970s view of the global economy that doesn't take into account global supply chains where no one location wins outright.

When you are faced with people who live in the past, the key thing is to move on.

Before we assess this unique opportunity given to us on a plate by the EU Commission, rest easy, because we win either way.

If we lose the appeal, Ireland gets a windfall of €13bn, or about €2,600 per person. This is enough to wipe out our budget deficit for years to come, spend on what we will, or use in another way, which I will explain a bit later.

If we lose, we will be seen by corporate America as its only friend in Europe. This is exactly where we want to be. It is not pretty, nor heroic, but it's realpolitik. When you have no capital base, you have to borrow someone else's. How do you do that? You make the place attractive for other people's money and you do that by taxing it modestly. It's time for Ireland to think strategically in a post-EU world. Now Official Ireland will be getting its knickers in a twist over the admonishing from the EU Commission, but that's because Official Ireland is captured and is pathetically insecure about our place in the world.

The "good room" mentality permeates the political corridors of power, where they care about what the EU apparatchiks think of us. We are constantly trying to please them, when we should realise that they are coming after us. Remember, no EU functionaries ever created a single job in Ireland. They don't matter in reality.

If, on the other hand, we win the appeal, we lose the windfall €13bn but we will have enormous credit in the bank with the multinationals and the American government. We have the opportunity to reset the relationship between Ireland, the national state, and these corporations that will make us rich.

Ireland's future is being the location of choice for large companies' supply chains. We are half way between America and Europe and we should keep a foot in both camps. It's really that simple.

Small indigenous Irish business can then service these American companies, creating symbiotic relationships. That's the game plan. Historically, the precedent is the medieval Adriatic city-states of Venice or Dubrovnik or the free-trading Hanseatic cities of the Baltic.

Let's not forget, without multinational investment, Ireland would be Albania with brutal weather. The multinationals have completely transformed the capital base of the country, totally upgraded the type of careers that are available to people here and plugged Ireland into the global economy in a way that is impossible to quantify. In short, they - not the EU - are the key to Ireland's economic modernity. The future is the smartphone, the technology and the Silicon Valley way of looking at the world.

Ask any 20-year-old on the street what means more to him: the iPhone 7 or the EU Commission? I don't ask this facetiously but pose it because one image is the future and the other - with its pompous councils of ministers and briefing papers - is the past.

The choice is ours. Are we going forward or going backward?

So let's look forward and see this as a brilliant opportunity to change the relationship between Ireland and the multinationals. Why not propose to the multinationals that we work together to evade the vindictiveness of the EU Commission and create real wealth for the Irish people?

Irrespective of what the EU thinks, multinational investment is going to continue. So unless the world abandons globalisation, money is going to continue to flow around the world.

The proceeds from multinational activity that go into Irish people's pockets is modest. The take from wages and corporate tax is only a fraction of what goes back - as dividends and higher share prices - to the shareholders of companies operating in Ireland. So it is shareholders, rather than workers or the exchequer, who are winning.

Why not let host jurisdictions become shareholders in the companies that are making profits and distorting GDP figures? Rather than taking all the money in tax, why not take some in shares and invest it? Let's be smart. Why not treat wealth associated with foreign capital as an annuity that accrues annually, much like wealth connected to an oil find?

By taking shares in multinationals, Ireland could create a sovereign wealth fund linked to the performance of the best-governed companies in the world, which would provide for future generations. In 2012, US multinationals made $100bn profit in Ireland, on which they are supposed to pay 12.5pc tax, or $12.5bn. In fact, they paid $4bn.

Why not encourage multinationals to pay the difference between what they pay and what they ought to pay in shares? Shares are permanent wealth, whereas taxes are transitory income. This is also attractive because shares or share options are cheaper for the company than giving cash. They already give their employees share options, so why not their host country?

So why not say to Apple and other multinationals, if the EU is going to be vindictive and retrospective, why not pay Ireland the difference between what you have paid us in tax and what you ought to have paid us, in shares?

Start with the Apple €13bn and see what else the EU turns up. This is a lot of money. Then apply this half share/half tax formula across the board.

Imagine a Fortune 500 Irish sovereign wealth fund, diversified across sectors operating in the Irish economy, with stakes in corporations such as Apple, Google, Facebook, Pfizer, Intel, IBM, Microsoft and AerCap.

Now we are talking in the future tense.

Irish Independent

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