Apple Tax Verdict Lets Ireland Move Ahead on Foreign Investment

The European Court of Justice’s nearly 13-billion-euro tax judgment against Apple Inc. closed a case that brought some unwelcome attention to Ireland for the past eight years.

The EU’s top court ruled that Ireland’s approval of beneficial tax positions from 1991 and 2007 gave the tech giant preferential treatment. But what are the long-term implications for investments in Ireland by US multinational enterprises?

The historical nature of the case should mean its impact on existing and future foreign investment in the country is limited.

Irish tax rules, and indeed global tax rules, have been significantly overhauled since the periods covered by the ruling. While Ireland was found to have breached state aid rules in giving Apple what was deemed an unfair tax advantage, many will see this breach as relating to a time when the approach to tax planning by companies and countries was markedly different. The concept of whether a tax structure was morally wrong wasn’t typically a factor at the time.

The fact that so much time has passed since the periods under scope reduces the adverse impact of the rulings on Ireland’s attractiveness from a foreign direct investment perspective. This will be viewed as ruling relating to a time when the approach to tax planning globally differed hugely, including in the minds of the public who typically didn’t get overly involved in such matters. That isn’t the case today.

More important is what’s happened in the past decade. During this time, Ireland enhanced its reputation by fully participating in the base erosion and profit shifting project and supporting both pillars of global tax reform. The Organization for Cooperation and Economic Development has lauded Ireland’s tax regime publicly for its transparency.

So while the adverse ruling is embarrassing, it’s only temporary. Ireland has a lot of credit in the bank following its moves to abolish the double Irish corporate tax avoidance structure and its embracing of both EU and global efforts to bring in a new set of global tax rules, which should maintain the country’s attractiveness to international investors.

It’s also relevant that the ECJ decision was a surprise to many tax analysts. While the Irish government accepted the decision, to many it appeared the ECJ was imposing laws that weren’t in place during the tax periods in question. Tax experts may be feeding back a message that Ireland had a strong case to defend, which may influence how the C suite views Ireland going forward compared with a more clear-cut decision where Ireland’s case looked weak.

A further relevant point is that this looks like an isolated case. Most double tax structures in Ireland involve a bifurcation of intellectual and active trade; Apple’s intellectual property was in a separate company from the one that operated the Irish trade.

The branch structure in the Apple case was relatively unusual, with most structures seeing the IP housed in a separate legal entity to the active Irish trade. Hence while nothing can be ruled out, it’s unlikely that the European Commission has other Irish structures in its line of sight, so further negative press for the country looks unlikely.

In the new global tax world, tax planning has a very different flavor, with a much-increased focus on ensuring that companies and countries comply with increasingly complex tax rules. The world to which the Apple case relates seems a long time ago, greatly reducing any long-term damage that might affect multinationals’ decisions to invest in Ireland.

US multinationals should be happy the case is closed. Had the ECJ referred the matter back to the General Court, the case could have dragged perhaps another five years, bringing with it more potentially damaging “noise.”

What’s going to be more important to multinationals based in Ireland is that the country remains competitive on the tax front. Even Pillar Two’s 15% corporate tax rate remains very compelling, comparing favorably with corporate tax rates in most competitor locations.

This article does not necessarily reflect the opinion of Bloomberg Industry Group, Inc., the publisher of Bloomberg Law and Bloomberg Tax, or its owners.

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Peter Vale is an international tax partner with Grant Thornton in Ireland.

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