The Apple tax fine: “Could lead to a cold war between Europe and the US”

nterview with Philip Lee lawyer Mattan Lass, as appeared in TheMarker, 22 September 2016

הדמייה של כדור הארץ עם כל הדגלים של מדינות האיחוד האירופי

The EU’s decision to impose a €13 billion fine has split public opinion in Ireland; following last weekend’s appeal to the EU by hundreds of American CEOs, with a demand to revoke the fine, Adv. Mattan Lass, who works in Ireland, offers a calming assessment: “foreign companies in Ireland have nothing to worry about”

One can hardly remember the last time that questions of international taxation aroused so much passion as in the case of the fine imposed by the EU on Apple in August, in respect of the latter’s business activities in Ireland. Last weekend, some 185 American CEOs, members of the Round Table business lobby, appealed to the leadership of the European Union to revoke the fine.

Two weeks ago it was Apple’s CEO, Tim Cook, who dubbed the ruling issued by the EU “political crap” and claimed that Ireland was being “picked on” by the EU. However, Ireland itself is witnessing a significant divergence between the views of its own government and the opinions of the general public. On the one hand, the government fears the implications this fine could have on the thousands of the international companies that have helped the nation’s economy to blossom.

On the other hand, a significant part of the public tends to favor the collection of the tax funds from Apple, particularly since this immense sum could, according to some estimates, create hundreds of thousands of jobs and revive various sectors that suffered heavily from the austerity measures declared in Ireland in the wake of the 2008 international financial crisis.

The threats announced by the leaders of the American business sector towards the EU were unusually aggressive. There are some who already argue that if the proceedings instigated against the tax planning structures adopted by EU-based companies are not halted, and if no solution is found in the near future, battlefront real fault line might emerge as against the US. “This could lead to a sort of cold war between Europe and the US”, says Mattan Lass, an Israeli-British attorney who specialises in working with foreign businesses in Ireland. Lass claims that “if an element of uncertainty will be introduced into Irish economy, it will have implications across the board. This will not be healthy for Europe”.

The “Double Irish” Arrangement

Three weeks ago, the European Commission ruled that the tax benefits Ireland granted to Apple were illegal and ordered the company to pay €13 billion to the Irish government as a retroactive tax payment. The European Commission also stated that the amount charged to Apple will be decreased if other countries, including the US, correctly assess and order Apple to pay them higher tax payments in relation to this income.

According to the statement issued by the Commission Apple has been given preferential treatment from Ireland in all matters pertaining to taxation policy, a fact which provided it with “a significant advantage over other companies”, . This is strongly disputed by the Irish Authorities who state that they have implemented Irish tax law correctly and have given no such preferential treatment to Apple. The fine imposed on Apple is the largest penalty ever to be levied in taxation tax-related matter, and it was levied on the back of a three-year long investigation by the European Commission regarding the treatment of Apple’s tax affairs.

Lass, who works in Ireland to promote the activities of foreign businesses in general, and Israeli businesses in particular, told TheMarker that Ireland will nevertheless remain an attractive hub for businesses, even after taking into account the planned reforms in Israel’s tax policy.

“Businesses see how Ireland stands shoulder to shoulder with them”, says Lass. “We (in Ireland) understand that our future depends on providing a warm and supporting hub for businesses, and it is important that we remain true to this path. It is easy to adopt a populistic view of this number, 13 billion, however most people around here, and this includes the public discourse on the streets, are against it (E.R. – the payment of the fine). Almost all the political parties declare that they do not want this payment – something which is quite unbelievable. We have a delicate situation here in which, on the one hand, if Apple does pay, the regular Irish person will stand to benefit; however, in the long term view, everyone understands the importance of keeping the multi-national companies in Ireland and therefore they understand why it is important to fight for them”.

Shane Nolan, vice president of IDA – the foreign investments agency operating under the Irish Ministry of Labor and Enterprises, supports Lass’s arguments. “We have said, time and time again, that we do not grant special terms to specific companies and, for that reason, Ireland shall lodge an appeal on the ruling issued by the EU. However, this affair created a significant commotion during the few weeks, and we have taken the time to clarify to all our clients and business partners that the foundations that helped build Ireland as an attractive hub are not affected by this ruling”, says Nolan.

Is there no concern that Ireland would lose its attractiveness compared with other regions, for example – Israel?

“This decision does not worry any other companies”, says Lass. “Apple employs 5,000 employees in Cork and even during the course of the investigation itself the company announced plans to expand its operations. Therefore companies, whether from Israel or elsewhere, have no reason for concern.”

“I think that, when all is said and done, it puts our name in the headlines – which will only benefit us. On the other hand, Israel, which created a hi-tech industry of which I am a big fan, is going in precisely the opposite direction which only perpetuates inequality”. According to the plan proposed by the Minister of Economy, Moshe Kachlon, hi-tech companies with annual revenues of more than NIS 10 billion would pay corporate tax at a rate of only 6% and a tax on the distribution of dividends of only 4%. In addition, companies with total revenue per annum of less than NIS 10 billion – but more than a sum yet to be decided – will pay corporate tax at the rate of 12% and 4% on dividend distribution.

“Kachlon’s decision could create a competition to Ireland; however, the question must be what Israel wants to achieve at the end of all this. What is its destination? International companies invest in Israel not because of the tax rates, but rather because of its human capital and innovativeness. I don’t think that decreasing tax rates for corporations would encourage the type of investments that Israel is looking for. If anything, it should decrease tax liabilities for everyone – rather than further entrenching inequality”.

As a further comparison, Lass notes that Ireland attracts multi-national corporations not only for tax reasons, but also due to other factors such as language, culture, a young population and its position as a geographical bridge between Europe and the US.

Could recent events keep the start-up companies out of Ireland?

Lass: “This is irrelevant to start-up companies. This kind of tax planning existed 20 years ago, but it no longer exist. They investigate Ireland – because it is a small country”

Ireland currently serves as a hub for the European regional headquarters of more than 1,000 global corporations, among them more than 700 American companies. According to the American Chamber of Commerce, these companies employee some 140,000 employees and contribute €3 billion per annum to the Irish treasury. Ireland is home to some 1,500 start-up companies, of which 1,200 are based in the capital city, Dublin, while the rest are based mainly in the cities Galway and Cork.

According to Nolan, “Ireland applies a clear and transparent taxation structure, and now both Apple and Ireland are entitled to appeal on the Commission’s ruling. Our position, that the foundations on which the EU ruling was based are fundamentally wrong, has not changed.”

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Adv. Mattan Lass

Managing director of Ireland Israel Business, Mattan is triple-qualified as a Solicitor in Ireland and England & Wales, as well as an Attorney (Israel).

Adv. Mattan Lass with a blue circle behind him