13 Billion – Lucky for some?

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goodwillTonyCork is a pretty city on the river Lee in the south of Ireland where I lived for part of my childhood. Cupertino in the Silicon Valley is the HQ of Apple Inc. As an Irishman and former Silicon Valley software engineer (who is ironically typing this article on an Apple Mac) what is my problem? Doesn’t Apple provide 6,000 Irish jobs? Well it turns out Apple’s small investments in staffing and infrastructure in Ireland are dwarfed by the benefits Apple accrued from a special relationship with the Irish legal and taxation system which it has been milking for billions for years.

Calling out this fiscal black hole has caused a full-blown international political battle, the result of just one decision on one corporation which, as it turns out, was not operating in Cork. This Apple incident is just one such ‘discovery’ representing just the tip of the iceberg.  Since 1980 some Apple products are ‘made’ in Cork, or, to be more precise, Apple claim that value was added in Cork, what seems to be more important is that Cork also housed certain non-US Apple sales and distribution channels. The recent European commission decision has revealed that Apple’s profits from Cork operations were not recognized in Cork or anywhere on the planet for that matter. The commission cried foul. Apple products share much with that other Cork marvel of modern technology, the Titanic, which though built in Belfast, made its first (and last) trip from Cork just 100 years ago. Experience is a hard teacher.

As I write this Irish national parliament is being called back from their vacation recess to deal with a 13 Billion Euro windfall (or rather it is being asked to reject it). The money from the black-hole has been accumulating over ten years. Just this one black hole from one large Apple corporation – with the scandalous submission of various Irish governments – has brought a major political crisis in Ireland’s post-Brexit relationship with the European Community. Naked threats of retaliation have come from officials in Washington DC reflecting a major trade tiff with the European Community – Ireland, as facilitator of this Tax fiddle is playing the role of piggy in the middle.

Despite US treats of retaliation the Commission went ahead and told Apple to pay back taxes to Ireland amounting to thirteen billion euro plus interest. The EU strongly hinted that the Irish government should also turn around and pay this 13 Billion to its EU creditors as part payment for Ireland’s recent EU-funded sovereign debt implosion.

Ireland’s recent financial collapse began with a Euro-funded credit explosion, transformed into an Irish real-estate bubble (which popped) resulting in a serious financial crash. In walks the Troika and transforms a local financial collapse into sovereign debt so as to dig out European creditors to the collapsed Irish banks.

Unsurprisingly Apple cried foul of its order of the Commission decision, it plans to appeal[sic.]. Apple’s thirteen billion will be held in a managed escrow account while this appeal is heard. Much more surprisingly, however, is the fact that Ireland’s Finance Minister, Michael Noonan of the centre-right Fine Gael party (part of a currently governing fragile government coalition) has begged the Irish parliament to come back from vacation to back his call to appeal the Commission’s decision. Yes Ireland’s own finance minister is asking its parliament to reject a windfall payment that could pay off 6% of the nation’s sovereign debt. As Ben Afflec’s character Chuckie Sullivan in Gus Van Sant’s Good will Hunting  would put it:

    “How do you like them apples?”

At the root of this political and fiscal impasse is just one small Apple company (AOI) with three directors and no employees which has been assigned vast profits. In 2013 John Cassidy wrote an article for The New Yorker magazine about the US Senate’s Permanent Subcommittee on Investigations hearings where Apple was investigated for its aggressive taxation policies; I quote:

 “Apple Operations International, generated thirty billion dollars of profits between 2009 and 2012 but paid no corporate income at all, not a penny.”

Apple Operations International (AOI) is not a real company; it has no HQ, no employees and does not even exist in Ireland but it exploits what Mr. Cassidy calls a ‘quirk’ in Irish taxation law which makes it exempt from paying taxes in Ireland or anywhere. In other words AOI is a company on paper only which is related to an Irish Apple company. It is a stateless entity designed specifically to exploit a loophole in Irish tax law; which was later closed. That loophole was in turn designed by corporate legal accountants and written into Irish law to facilitate AOI (and other such non-companies in Ireland) by making them exempt from Irish (or anyone else’s) taxation. Corporations have used this loophole for years to gain EU access to markets for their products and services (by adding value in Ireland) while being exempt from paying taxes on corporate profits.

In layman’s language AOI is a tax scam. Irish tax lawyers wrote the loopholes into the Irish legislation to facilitate such scams. This makes the Irish legislature jointly culpable with the corporations who exploit the loophole and the politicians who protect them.

The end result is that governments across the planet where Apple products were sold are starved of the legitimate corporate taxation on Apple profits made in their markets, as a result of local Apple sales. The global multinational tax system is beyond broken; it has become corporate fraud.

This problem is not unique to Apple, to Cork, to Ireland, or to the EU. It is rather the result of a global takeover of government legislation on corporate taxation and the transfer pricing arrangements that enables flows of trillions of dollars of profits away from local taxation to hide in offshore entities in the Cayman Islands, the British Virgin Islands, Ireland, the UK (to name but a few).

This single Apple payment for profits assigned to one of its affiliate paper corporations is just the tip of the iceberg, the system of which it is a part represents a fantastic transfer of wealth from the tax-paying poor to the non-taxpaying rich (the shareholders of multinational corporations). What we are witnessing is pure neoliberalism in action, the result of the free movement of globalised trade (and profits made) with nationally protected taxation ‘quirks’ liberating capital on its global search for tax avoidance. The barkeep’s tip for this convenience is a few local jobs in Cork. What is more pathetic still is that we are hearing about this since one incident because Apple is a manufacturer of a recognizable consumer product and also because something is being done about this fraud only because it ruptures another neoliberal tenet “competition rules” adjudicated by the European Commission an organization that seeks to provide a level playing field for corporate capital within the EU.

This story will not end with Ireland or Apple. The next phase is being played out in the latest G20 meeting in Beijing where, among other issues, corporate taxation of multinational profits is being discussed. But don’t hold your breath for global tax justice while the revolving doors still spin in the upper echelon’s of government and corporate power and while laws like the Trade In Services Agreements (TISA) are written in secret by corporate lawyers and passed by compliant government. Expect that this system will continue to mean that government services like education and health will continue to be funded by personal worker and consumer taxation while global corporate profits defy borders in their contorted paths toward tax evasion for the rich.

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