This week’s Apple decision felt important in the long history of Ireland’s relationship with multinationals. And it surely was, though it may take us a while to figure out exactly why. The money is nice, of course. It generally is. And in the subsequent debate the €14 billion has already been spent a few times over.
But while it is a decent boost that opens up some investment options for the years ahead, it is not a transformational amount of cash. The State already has two Apple windfalls in the cash pile held by the National Treasury Management Agency, is due to have €10 billion in two newly established investment funds by the end of the year and has a budget in strong surplus.
As it takes a few years to get anything through planning anyway, talk of “accelerating” investment with the Apple cash needs to be taken with a pinch of salt. For example, a report this week by Mario Draghi, the former European Central Bank (ECB) boss, on European competitiveness found it takes nine years to deliver an onshore wind project in Ireland, compared with an EU average of six.
We are shooting ourselves in the foot with this ludicrous planning and legal quagmire. There is now serious disquiet among big multinationals about the State’s ability to deliver in areas such as water, energy, housing and other infrastructure, added to by high energy costs and huge uncertainty when they enter the planning process for their own projects. This concern has grown in recent months, according to a range of sources.
Ireland is no longer seen by at least some corporate HQs as a location for new investment. Vital certainty is missing. Some are taking a “once bitten, twice shy” approach, having already seen projects delayed interminably. And now there are questions about whether the State can offer certainty in the area of tax.
The Government is trying to paper over the cracks after this week’s European Court of Justice (ECJ) decisions, arguing that the Apple decision was historical and has no impact today. Whether it does or not will relate to fine points of tax law and particularly whether what Apple did was sufficiently different from other multinationals to make it somehow unique.
The 1991 tax negotiations between the Irish Revenue and half a dozen or so big multinationals, including Apple, are, indeed, now history. Those occurred when the old export sales relief scheme ran out and they offered a zero rate on overseas sales. Ireland continues to argue that no one got a special deal. In Apple’s case the ECJ has found otherwise.
These old deals may be left to lie now but other companies are talking to lawyers and tax advisers about their tax structures from 2014/15 onwards.
This part of the story may blow over, though we will have to see how the new European Commission approaches it. Ireland can now point to having signed up to the OECD tax deal and made significant changes in tax rules. However, having pushed its luck too far in the past still leaves some exposure for Ireland.
Because the Apple controversy broke after 2013 Ireland was too slow to react, with the double-Irish tax rules – widely used in tax-avoidance structures – only finally phased out by 2020, and too-generous reliefs on intellectual property (IP) investment introduced. It was a failure to see the way the wind was blowing.
As finance minister from 2017, Paschal Donohoe wisely started a process of bringing Irish rules into line – including rolling back the IP reliefs – and eventually signed up to the new OECD corporate tax deal.
Ireland had hoped this would provide certainty for the future, even if it reduced tax as a selling point. The goal was to take the tax haven tag off the table and move Ireland back into the mainstream. But now the State is back in the spotlight. While the exposure of Ireland to further historic tax investigations is unclear, the ECJ judgment gives the European Commission greater powers to nose around in national systems. We will have to see how the new commission uses it.
And the decision will be awkward for Irish ministers in trying to fight off the seemingly endless push for European corporate tax harmonisation and – as suggested by the Draghi report – in likely talks about the end of national vetoes over tax at EU level. Other EU countries have long argued that Ireland’s tax regime is costing them money and will not be slow to take advantage. Another leg of uncertainty could emerge here about future Irish tax rules.
Against this backdrop, Ireland needs to focus on what it can control. This Government – and the next one – needs to ask the question: what do we now offer to investors? The huge base of US firms here and our EU membership are real advantages. There are still big projects being announced. But Ireland’s offer to investors is fraying – they see creaking infrastructure, a housing crisis and an underfunded higher-education system. Ireland’s tax advantage is shrinking. And then there is the fallout from the Apple judgment.
This all brings Ireland to a turning point in its relationship with multinationals; we need to make sure it is not a tipping point. For the last decade, in particular, investment has flooded in. Now new competition has emerged, including from bigger EU countries and the US itself, where there are now big financial incentives for key projects.
Unfortunately, this has coincided with a cost squeeze that is hitting lower margin multinational operations here – and some of them are also suffering from economic problems in slowing overseas markets, including Germany. The ECB’s statement this week on slowing euro zone growth is worth noting.
And then there is what Ireland can – and cannot – offer. Promises – about clean energy, top-class education, abundant water and so on – count for little now. The State has the resources to address this, helped by another €14 billion which will soon be resting in our account. But the question investors are asking is whether Ireland can actually deliver.