The Grumpy Old Man

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An Apple a Day Keeps 13 billion at Bay

It is only fair that large organisations such as Apple pay their full tax contribution to their country of operation in accordance with that country's laws

I can't resist having yet another go at the Civil Servants and politicians who are supposed to be running this country for the people. (As Abe Lincoln prescribed for a democracy).

Unless you haven't guessed, I'm talking about the recent European Commission ruling that the level of tax charged, or should I say not charged, by the Irish state on Apple profits constituted state aid by virtue of preferential tax treatment. The commission has calculated a tax bill of 13 billion (plus interest of course) covering some 10 years. The sum is enormous because Apple routed all their profits through a Dublin subsidiary. In this way, the profits appeared to be "generated" in Ireland. This was done solely to avail of the already low headline rate (12.5 %) of Corporation Tax in Ireland.

The rate charged to Apple, over an 10 year period, varies from year to year but is between 0.005% and 1%.

How in the world such ridiculous amounts ever came about beggars belief. Particularly so when, each year the Irish Revenue Commissioners publish a list of the previous tax year's defaulters. Although one does occasionally see settlements over 1million, they are relatively few and far between. Most of the settlements being in the hundreds of thousands of Euros. From what I have read, it seems that the amount paid by Apple was agreed in a deal between them and the Revenue Commissioners (Civil Servants). According to recent press reports, the elected government was totally unaware of such a settlement being reached with Apple for a significant number of years after the event.

When one considers that in 2008 Ireland, like it or not, was bankrupt and needed to borrow huge sums of money from the IMF and others, just pay their way on a daily basis. Is it not surprising that this was the case when such a crackpot deal had been agreed with Apple effectively reducing the national tax take by 13 billion. What annoys Grumpy, is that if you put that sum into perspective with a few very simple calculations one can see exactly how much this gift (because let's face it that's what it was) has cost the population particularly those in employment in Ireland.

13 billion every 10 years is equivalent to 1. 3 billion per annum (lost to the tax "pot"). The population of Ireland is 4.6 million with those in employment being nominally 2 million (National Statistics Office figures).

Grumpy would argue that people in employment in Ireland have had to make up that lost tax for the country to stand any chance of achieving some form of fiscal balance. It is a very simple sum to see that the sum lost equates to 650 for every working person for each and every one of those 10 years, or a single lump sum "tax rebate" of 2,800 for every man, woman and child in the country.

Or the money could have been used towards bailing out the banks in 2008. 13 billion would have represented a significant chunk of the 85 billion reputed to have been spent on that task.

Or it would make a nice hole in the national debt!

Or perhaps lesser projects that are being discussed such as; a second runway at Dublin airport (estimated cost of 320 million); or a rail connection from the national and commuter network to Dublin airport (estimated cost 300 million); or the new Children's Hospital (estimated cost of 650 million); and let's face it you could have all of those and still have money left for over 1000 km of new motorway! (estimated cost of 10 million per kilometre).

Like everybody, Grumpy doesn't enjoy paying his taxes, but he still does so, even though it is frequently very difficult. It is his choice to be resident in Ireland at the moment and he pays his contribution to running the country through the myriad of taxes that exist. Had he lived in a different country, for example the UK, the tax structure and tax amounts would be different and therefore Grumpy's tax bill would be different. This means that Grumpy pays the due taxes in the country in which he "operates". Grumpy believes that this Apple deal is a real slap in the face for the very hard-pressed taxpayer here in the Republic of Ireland.

Apple, chose to come to Ireland. No doubt there were many other financial inducements for them to come. It is quite possible, that for their first accommodation, a peppercorn rent was paid. Grumpy has no hangups about that, but on an annual operating basis Apple must have been aware of the corporation tax normally payable by lesser mortals in Ireland. Grumpy believes this deal gives a hugely profitable multinational company a hugely unfair commercial advantage particularly when we consider the financial and tax constraints that I'm sure are applied with gusto to small home-grown indigenous Irish start-ups.

I am aware that many revenue systems allow the taxpayer to "make an offer" against the level of assessed tax. Clearly if one makes a low offer, then one has to justify that to the assessment officer. I fail to see how in the world offering 0.005% in satisfaction of a bill of 12.5% makes any sense at all unless the offeror is potentially bankrupt! When the company making the offer is sat on a pile of cash, (reputed to be $232 billion or some 205 billion) it beggars belief that such an offer, was even considered. Particularly so when the country owed the tax was itself bankrupt. Gordon Bennett, talk about leprechaun economics!

Let's face it, 13 billion would have made quite a difference to the amount of money that Ireland had to borrow to keep its own banks afloat! Borrowing that money didn't come cheap consequently there's another bill that is being foist upon the average working man in Ireland. An estimated 85 billion was used to recapitalise the banks. (With the Apple money being a significant portion of that, it does raise the question of how the situation might have developed with the Apple money in the tax pot?)

I'd expect Apple to appeal the ruling, and, I suppose the government of the day have got to appeal the ruling, if only as another face-saving exercise. But the bottom line is, the whole sorry saga is a terrible indictment of how the country is run. It is absolutely astounding that the level of tax being paid by Apple had not already become a matter of public knowledge and concern many years ago. The fact that it wasn't, would suggest some form of cover-up was going on. I, as one of the electorate, would never have considered voting for anybody in the slightest way associated with a government that supported such a crackpot deal. Furthermore, it must be particularly galling for those whose names appear on the tax defaulters list!

It's poor Joe Soap in the street who is suffering because of this ridiculous deal. Yes, Apple brought employment, but it seems they weren't prepared to pay their way in accordance with the laws of the country in which they operate. One must ask, what other companies such as Intel, Google, Microsoft etc etc are paying. Do they have similar stupid sweetheart deals, you can bet your bottom Euro they have!

It is clear that Apple profits are not being reported as income in the country in which they are generated. By shifting the profits as an accounting exercise, they were indulging in tax avoidance. Forms of tax avoidance which use tax laws in ways not intended by governments may be considered legal, but it is never considered moral in the court of public opinion. Many corporations and businesses taking part in the practice experience a backlash from their customers or online. Grumpy would also observe that the country of origin of the profit is losing out, so I am not surprised that some people are getting very hot under the collar about it.

Grumpy believes that this is purely an example of one of the many problems that will arise as Companies globalisation becomes more and more widespread. The bigger a company gets, the more able it is to avoid paying tax through the utilisation of loopholes in company taxation law. For much smaller non-international companies, these loopholes are of little consequence. As companies grow and become more and more international, exploitation of the loopholes becomes much easier and what is happening here is but one example of that effect. It only goes to show that companies have and always will manage to keep one step ahead of much of the legislation under which they are supposed to be operating. Governments around the world, Grumpy surmises, will always be in the situation of "catch up".

As a final observation; what Apple did, I have no doubt, was completely legal. Maybe so, the numbers involved make the whole thing decidedly immoral and show that the governance system here in Ireland stinks. If only that the left hand doesn't know what the right hand is doing most of the time.

In reality, Grumpy believes it is yet another example of the way "rules" are observed here in Ireland. It frequently seems that one follows the laws and rules that one feels inclined to at the time! Gordon Bennett, what is so astounding about this situation is that the Civil Service seem to run rings around the framework established by the elected representatives forming the Government of the day. Doing whatever takes their fancy on the day in question! Within this context, Grumpy would be overjoyed if someone could explain to him how to decide the laws to follow and the laws he can just ignore as meaningless window dressing designed solely to annoy Grumpy and the public at large.

There is a common theme running through this and other grumps. Click here to .....read more......