The decision of the European Commission to require the Irish State to collect €13 billion in unpaid taxes, plus a potential €6 billion in interest, from US technology company Apple made headlines across the world. Special tax arrangements, which appear not to have applied the State’s already low 12.5% corporate tax rate, led to an effective tax rate on Apple of 0.05% in 2011 and 0.005% in 2014. Two tax rulings in 1991 and 2007 allowed an Irish company to book Apple sales across Europe, the Middle East, Africa and India in Ireland and attribute profit on these sales to a “head office” which was stateless, had no offices, had no employees and existed only on paper.
The Irish State has decided to appeal the ruling, as has Apple itself. Apparently preventing the State from abjectly prostrating itself in front of Apple is an assault by the European Commission on the sovereignty of a small nation. It supposedly calls into question Irish tax policy while the Government frantically claims that the ruling affects the arrangements of no other multinational.
The appeal is to protect Ireland’s reputation although being dragged kicking and screaming to apply your own laws without discrimination, while defending cheating other countries of tax revenue, is apparently good for it. The appeal is to prove that the Irish State is not a tax haven although a tax rate of 0.005% would appear to be a decent definition of one and defending it would appear to be open acknowledgement of it. The Irish Government seeks to defend its prerogative to set an (in)famous corporate tax rate of 12.5% but does so by defending a 0.005% rate.
€13 billion is a big number and is the biggest judgement in the history of EU competition law – the cumulative total of all EU cases involving repayment of illegal state subsidies over the past 15 years is less than €11 billion – and it has been imposed on Apple, the world’s biggest company by market capitalisation.
One explanation given for all this is that the Irish state is dominated by imperialism and plays its natural role as an obsequious supplicant to multinational capital. This is ok as far as it goes but it doesn’t go far enough, either in explaining or in providing the grounds for an alternative. If we start with the latter – an anti-imperialist struggle in Ireland to make the natural resources of Ireland the property of the Irish people isn’t a solution.
For a start, the main natural resource of Ireland is its people. In fact the growth of technology, and companies like Apple, demonstrates that it is the knowledge and skills of workers which is the key to the most dynamic sectors of the economy. So it is harnessing the power of workers that is the key to economic development in Ireland as elsewhere, not minerals under the earth or the factory building which house the most modern production. The machines that power this production are obsolete within years; simple ownership of them does not guarantee the future unless workers not only own them but have the knowledge and capacity to continue to revolutionise their development.
Secondly an utterly subordinate role for Irish capitalism does not explain how it allowed itself to become the vehicle for depriving other European countries of tax revenue, which the EU ruling now gives the latter an avenue to pursue. The ruling signals that although other EU states may not have liked the Irish State’s low corporate taxation regime, it was not such a problem if it remained relatively marginal. After all, they’re all engaged in tax competition in one form or another as one facet of inter-state and inter-company rivalry.
The problem for the Irish is that they prostrate themselves disproportionately to the US, who don’t so much mind the role of Ireland as a tax haven since it is US tax rules which permit Ireland’s role of in tax avoidance and also still allows the US to take a cut if and when the profits are eventually repatriated, perhaps as a result of some tax amnesty.
The Irish State has thus put itself in the middle of a bigger competition between EU and US capital and however much it might be “closer to Boston than Berlin” and wallow in its generations of emigrant’s ties to the old sod, the Irish State is part of the EU. Its facilitation of US companies through an effective tax haven can only be permitted so much success before the bureaucracy of the EU proto-state decided that it had gone too far. The Irish are therefore not just functioning as a subordinate client to imperialism but play a particular role in inter-imperialist rivalry.
And it would be wrong to characterise this role as something anomalous to the normal functioning of capitalism. Apple had over $215 billion in cash and assets sitting outside the US as of June this year, sitting there avoiding US taxation. It has been estimated that this is only part of $1.4 trillion sitting offshore of the US, all avoiding tax and perhaps waiting for an amnesty and a nice big deal.
It has been estimated that about half of all lending and deposits originate in Offshore Financial Centres(OFCs), about half of which are also tax havens. The Irish State comes in 9th on the list in terms of size of tax haven, behind the Cayman Islands, which is the largest, and Switzerland and the Netherlands, which are 7th and 8th respectively. These OFCs account for receipt of about 30% of the world’s foreign direct investment and themselves originate a similar amount.
While the tax rulings in 1991 and 2007 were based on Apple’s proposals to the Irish State, there is nothing anomalous about this either. The British ‘Guardian’ newspaper reported last Thursday that “the government has effectively privatised tax policymaking and enforcement . . . a working group consisting entirely of representatives from GlaxoSmithKline, Rolls-Royce, Eisai pharmaceuticals, Syngenta, Shell, Dyson, Arm, KPMG, Vectura and AND Technology Research drafted what eventually became known as the Patent Box legislation. They secured a special tax concession worth over £1bn a year for large corporations.”
The EC ruling on Apple has been described as “a watershed” and liberal Irish commentators have argued that it’s a wake-up call – that the Irish State’s success, based on attracting multinationals through tax breaks, is not a strategy that will stand the test of time. The Irish State and its apologists claim that their tax policy is actually an industrial policy, which should be regarded as a purely national issue, but if this were so then we would expect the Cayman Islands, the Bahamas and Jersey to be thriving centres of industrial production. Their brass plate companies and those in Ireland shown how ridiculous this rebranding exercise really is.
Some states benefit from tax competition and some suffer losses. The EU bureaucracy attempts to set rules that do not allow discrimination against European companies as if the European Union was one capitalist state, which it isn’t (yet). The state aid case against the Irish State is not therefore a bolt from the blue. Since 2000 there have been 400 state aid cases and 225 cases involving tax advantages across the EU. The Irish State, as a fully paid up member of the EU, has approved European Commission investigation of the tax arrangements of fellow EU states.
In October last year the EC concluded that Luxembourg and the Netherlands had granted tax advantages to Fiat and Starbucks respectively and in January concluded the same in relation to Belgium’s treatment of at least 35 multinationals, mainly from the EU, amounting to €700 million that should be collected. The EC is currently investigating Luxembourg and its relations with Amazon and McDonald’s.
Capitalist states therefore both cheat and enforce laws against cheating. They both protect big business and tax it in order to pay for itself. Mostly however they tax small businesses and workers to provide the services and infrastructure that allow society to operate and function, one that functions and operates according to the laws of capitalist accumulation.
Forward to part 2