(Bloomberg Opinion) -- In 2014, when Brussels regulators began to probe Apple Inc.’s low-tax arrangements in Ireland, an unlikely figure rushed to Dublin’s defense. U2’s lead singer Bono, no stranger to attractive offshore jurisdictions, pleaded that Ireland’s multinational-friendly model had brought the only prosperity the nation had ever known. “We are a tiny little country,” he told The Observer newspaper. “We don’t have scale… We don’t have natural resources.” The future happiness of the Irish depended on keeping companies like Apple in clover.
The Bono defense is a frequent national battle cry in Ireland, deployed to drown out awkward questions about the tax arrangements of Big Tech. It’s not convincing.
When the EU ruled in 2016 that, yes, Apple’s tax treatment was illegal state aid and, yes, Ireland did have to collect up to 13 billion euros ($14 billion) in back taxes, the Irish leader Enda Kenny rejected the decision. He accused Brussels of overreach and vowed to fight alongside Apple to defend his people’s economic prosperity.
Now Dublin’s appeal against the ruling is working its way through the courts, it’s a reminder of how bad the country’s argument looks. Ireland is spending millions of euros of public money on an appeal to prevent billions of euros from flowing into state coffers, which to Apple would be the equivalent of three months’ profit. Dublin says it just wants to clear its name. But really it’s going in to bat for a practice that netted Apple’s Irish unit a 2014 tax rate of 0.005%. While the loophole that allowed this was closed, thanks to international pressure, others have taken its place.
Is this really in the national interest? The imprint of tech multinationals on the Irish economy is certainly hard to miss: All those shiny headquarters in Dublin’s “Silicon Docks” are evidence of investment and jobs. The Irish economy grew 8.2% last year, and the unemployment rate is below 5%.
But the prosperity of this low-tax, high-trade economy can also sometimes look a little over-dependent on capricious global corporations. Apple’s restructuring of its Irish tax affairs in 2015, which largely involved moving ownership of intellectual property into the country, boosted Ireland’s GDP by a preposterous 26%. Gross national income (the total money actually earned by Ireland’s people and businesses) is barely 80% of GDP. The economist Paul Krugman calls it “leprechaun economics.”
Moreover, the money rushing into Ireland is sucked away from elsewhere. An estimated $117 billion in corporate profits was shifted to the country in one year from higher-tax jurisdictions, according to the Missing Profits research group. Some of these countries are Ireland’s European Union partners, the very same ones that Dublin wants to defend its interests during Brexit. At last year’s Davos summit, the Irish finance minister Paschal Donohoe was berated personally by the economist Joseph Stiglitz for “stealing” from the rest of the EU.
Ireland is right about one thing: It can’t unilaterally become the world’s upright collector of taxes. There needs to be international cooperation to fight corporate wheezes. A change in Irish policy would simply encourage companies to send their money to another tax haven. Other EU members, Luxembourg and the Netherlands, have appealed similar Brussels tax rulings against Starbucks Corp. and Fiat Chrysler Automobiles NV.
But Dublin doesn’t look too keen on multilateral solutions either. It opposed EU plans for a tax on digital services, opposed EU plans for a common tax code for multinationals and delayed fully closing some aggressive loopholes even as it signed up to new OECD tax reforms. That “wasn’t smart,” the OECD’s tax policy chief Pascal Saint-Amans said in July, describing Ireland’s response to the global crackdown as: “No, no, no.”
Plenty of Irish people have spoken out against the Apple appeal, from Green Party politicians to academics. They should be heard. If the global tide is indeed turning against aggressive tax schemes, it makes sense to prepare the way for a different type of economic policy. Bono’s an ageing rock star; he’s out of tune with the times.
To contact the editor responsible for this story: James Boxell at jboxell@bloomberg.net
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
Lionel Laurent is a Bloomberg Opinion columnist covering Brussels. He previously worked at Reuters and Forbes.
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