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Apple’s Irish Tax Exposure Opens Up International Debate

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There’s little doubt that large companies such as Apple, upon which the specter of tax avoidance fell recently, benefited greatly from Ireland’s more than favorable corporate tax rate, and their presence in the country contributed to Ireland’s economic boom in the period between 1997 and 2008.

As the debate has raged on over which party is to blame, Ireland or Apple, for the latter’s tax avoidance, it should not be forgotten that Ireland was one of the worst-hit countries in Europe, and that it has been more or less decimated by the financial crisis and the subsequent recession.

So while a favorable tax regime did indeed bring investment from numerous multinational companies over the years prior to the crisis, and Ireland’s 12.5% corporate tax rate has remained unchanged since then, the Apple issue, according to Micheál Collins, senior research officer at Nevin Economic Research Institute (NERI) in Dublin and vice-chairman of the Irish Social Policy Association (ISPA), should really serve to draw focus on a much larger issue: The need for a more concerted move toward an international taxation model that, while allowing companies to be profitable, also ensures that they pay their fair share of taxes on their profits wherever in the world they have business.

The Apple case has brought to light the fact that that link between where companies make their profits and where they pay their taxes on those profits doesn’t exist, Collins said, but at this time, it is a vital link that will benefit Ireland as much as it will benefit other nations struggling to get out of the recession. “When we think of a tax system for multinational companies in Ireland in the years to come, I would anticipate that in the next five to 10 years, we’ll see corporate tax structures greatly altered,” he said.

Ireland, as much as any other nation, should be part of a global model for corporate taxation going forward. The continued investment by multinational companies in Ireland is important for economic growth, Collins said, even if it is just a part of what’s going to be needed to stimulate the economy.

In fact, Ireland’s favorable tax regime for corporations – domestic as well as multinational, albeit much lower than elsewhere in Europe, was always just one of the factors driving the nation’s economic growth in the years before the crisis.

“If we think of the Irish boom, we should define it in terms of stable growth on the basis of sound economic expansion from 2001-2002, and tax was a part of it over that period of real growth,” Collins said. “During that period of stability, the government, the trade unions and the employers were, to a certain degree, communicating with each other for the progress of the Irish economy and for the stability of macroeconomic indicators.”

A country whose lingua franca is English and that is committed to the euro was also well-located within the single European market, Collins said, “so if you operated and traded in Ireland, you had access to all of the euro market, and that helped to make transactions easier. We did have a large amount of investments flowing into Ireland at that time compared to the size of the economy and we also had a young and educated workforce, which, by comparison to Europe, was also a cheap workforce.”

For corporations looking for affordable overseas options, then, Ireland was an attractive nation, and it still is. But like any other nation, attracting investment from multinational companies isn’t enough and now more than ever, nations everywhere need to look out for themselves by ensuring that even if they offer a welcoming tax climate for business, they should also reap some of those benefits. Because clearly, even as a host nation, Ireland did not benefit from Apple’s clever tax shifting (since 2003, the company has paid a 2% tax rate in Ireland), Collins said, so an international, cooperative tax model is all the more important to a vulnerable economy.

Looking ahead in the short term, Ireland’s export sector – which developed nicely during the years of economic prosperity – will play its part in helping to slowly draw the economy out of its slump. Both indigenous Irish companies and multinational concerns have been growing, even as the flow of exports depends on both the pan-European as well as the global economic climate. But there’s no denying that the effects of the recession have been gone deep (Ireland’s unemployment rate is 14%) and it will take a long time for Ireland to recover completely from the damage.