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Last week Ireland welcomed a court ruling that denied it more than €14 billion of Apple money in back taxes. It has brought its tax regime into sharp focus, but the problem is global as much as anything else.
Back in July 2016, the Irish Central Statistics Office was the bearer of what seemed like good news. It posted a revision of earlier data, stating that the country's annual GDP growth for 2015 was a massive 26.3%.
Ireland's economy was indeed in good shape again after several years of hardship. But the 26.3% figure was a gross distortion of daily economic reality in the country. One company above all others was responsible for the sudden explosion of Irish GDP: Apple.
The first company ever to be valued at $1 trillion had rearranged its tax affairs substantially in 2015 in response to changes in Irish tax law. Suddenly, the license for Apple's hugely valuable intellectual property outside the US was relocated to Ireland. This relocation of profits led to a dramatic Apple-shaped swelling on the Irish balance sheet.
Not that Apple's tax payments in Ireland soared accordingly. The company used complex legal means to keep its tax payments as low as possible both in Ireland and in the US.
Nobel Prize-winning economist Paul Krugman famously referred to the moment as "leprechaun economics." Yet that is not even what the recent legal case between the European Commission, Apple and the Irish state relates to.
That was for the period between 2004 and 2014, when the Commission argued — incorrectly, according to last week's ruling by the General Court of the European Union — that Apple should have paid the Irish state at least €14 billion ($16.2 billion) in corporate tax for 2004-2014.
That case hinged on the idea that Ireland had provided illegal state aid to Apple by offering it a bespoke deal.
After winning the case, the Irish Minister for Finance and new Eurogroup head, Paschal Donohoe, said: "Ireland has always been clear that the correct level of tax was charged and Ireland provided no state aid to Apple. Ireland continues to make appropriate changes to its tax regime in line with developments in the international tax environment and remains committed to that process."
Yet the sight of a national government going to great legal lengths to avoid receiving billions in tax cast a light on the way Ireland treats multinational companies, especially those from the US, with regards to tax. A 2018 study by the University of California, Berkeley and the University of Copenhagen referred to Ireland as "the world's biggest tax haven."
The European Commission says it wants to fight tax avoidance. It has published an EU blacklist of global tax havens, but it is showing an increasing appetite to take on low-tax countries within the EU itself.
European Economy Commissioner Paolo Gentiloni recently suggested that the EU was open to using previously unused treaty provisions that would let taxation proposals "be adopted not by unanimity but by qualified majority." Such a move would be a big break from previous policy.
So is Ireland a tax haven? Yes, according to Liz Nelson, director of the Tax Justice Network, an NGO which campaigns against global tax avoidance and tax evasion. "Ireland, like other jurisdictions, 'procures' profit shifting," she told DW. "Together with other jurisdictions they hold together a web of secrecy."
Viewing Ireland's system for taxing multinationals as part of a wider global picture is an important point though. Eduardo Baistrocchi, a professor of tax law at the London School of Economics, describes Ireland as a "non-G20 hub in the international tax system."
"Non-G20 hubs are a group of countries that are in the business of connecting multinational enterprises (MNEs) with market jurisdictions to minimize the tax entry and tax exit costs of MNEs," he told DW.
"The Apple–Ireland–EU state aid dispute shows, with unprecedented detail, the role of a non-G20 hub," he says, adding that Ireland, in effect, connected Apple with markets on all continents. "For example, in 2014, for every $1 million of profit that Apple earned from its European operations, Apple paid $50 tax in Europe: an effective tax rate of 0.005%."
He also says that this "non-G20 hub" model has evolved gradually over the last 50 years, with Switzerland having been the "superstar" country from the 1960s to the 1990s. "The Netherlands overtook Switzerland as the second version of a superstar non-G20 hub at the start of the 2000s. Ireland and Luxemburg, in turn, are now competing to take over the Netherlands' rank as the third version of superstar non-G20 hub."
The Irish Department of Finance did not respond to a DW request for comment, but the Irish government has consistently argued that it taxes companies correctly according to its own laws. In terms of the 0.005% tax rate, there is little arguing with the figures but likewise, there is little arguing with the fact that that the extremely low rate was indeed legal.
New Eurogroup head Paschal Donohoe may face some awkward questions about Ireland's tax regime, given he is also the country's finance minister
According to both Baistrocchi and Nelson at the Tax Justice Network, the problem is global.
Baistrocchi argues the tax-hub model is not prohibited by the international tax regime, just to add: "However, it is triggering an ongoing clash between globalization and democracy because of the increasing inability of tax systems to address problems of inequality within countries. This clash has been producing, in turn, electoral shocks in both the developed and developing world such as Brexit, Trump and Bolsonaro."
He says the international tax regime is "broken" because of the power and influence of huge multinationals such as Apple.
The OECD, an economic alliance of 37 countries including both the EU27 and the US, has been working on striking a global deal on taxation aimed at curbing multinationals from avoiding tax in the various countries in which they make money. The original proposal is that countries be allowed tax operations in their jurisdiction even if companies have no physical presence there.
However in June the US suspended the talks, saying it was opposed to digital services taxes, fearing such dramatic rule changes would hit its tech behemoths.
Baistrocchi says the OECD attempt at reform is "a step in the right direction" but says it will require a degree of international cooperation on tax not seen since the current international tax regime emerged almost 100 years ago at the League of Nations, the organization preceding the United Nations.
Nelson hopes the European Commission continues with its own fight against regimes like Ireland's but doubts the OECD plan, saying it has "lost its way." She hopes that EU governments will eventually force multinational firms such as Apple to publish their country by country reporting, as "simply making that data public can curb corporate tax abuses and raise substantial revenues."
The Apple ruling suggests such hopes remain a long way off. But a closer examination of it also suggests that it is not really up to either Ireland or Apple to solve a taxation problem that really is the whole world's issue to deal with.
Here is a portion of a statement Apple provided to DW, which was originally issued after the court verdict:
"We’re proud to be the largest taxpayer in the world as we know the important role tax payments play in society. Apple has paid more than $100 billion in corporate income taxes around the world in the last decade and tens of billions more in other taxes. Changes in how a multinational company’s income tax payments are split between different countries require a global solution, and Apple encourages this work to continue."