In Whose Interests?

Above: IFSC. Photo Credit: Eoin McNamee.After the landmark European Commission decision over Apple’s Irish back taxes, Rory Geoghegan delves into the reasoning of the Irish government’s reactionApple has been ordered to pay up to €13bn ($14.5bn) in back taxes to Ireland after the European Commission ruled that deals between Apple and the Irish tax authorities constituted illegal state aid. The EU Commissioner for Competition, Margrethe Vestager, stated that Ireland had breached EU state aid law by granting Apple “illegal tax benefits… which enabled it to pay substantially less tax than other businesses over many years”.The Irish state, along with Apple, conspired to illegally reduce the amount of tax on European-wide profits, which the company routed through its “head office” in Dublin, by way of two tax rulings in 1991 and 2007. Commissioner Vestager noted that Apple’s “head offices” in Dublin had “no employees, no premises and no real activities”. In fact, the “head office” existed only on paper. In 2003 the company paid a tax rate of 1% on the profits of Apple Sales International. However, come 2014, that figure dropped to 0.005%. This amounts to Apple having only paid €50 on every €1 million it declared in the Republic. In the Interest of a Few The EU Commission’s shock ruling on Tuesday, and the government’s response to it, highlights the deeply unjust society in which we live today. The response given by the Minister for Finance mirrored the denunciation from Apple; the two quite clearly signing from the same hymn-sheet. In a remarkably insulting use of the word, and with seemingly no understanding of it, Noonan called the ruling itself, “unjust”.It is astounding that our democratically elected government is prepared to fight the EU in the interests of the most profitable company in the world, and at the expense of its own people - €670,000 of the taxpayers money has already been spent on legal fees fighting the case. Even if the government were to eventually accept the €13bn it would not likely be used to fund starved public services. Instead, it will be used to pay down the country's socialized private banking debt. It is at these moments of heightened elite protectionism that we can clearly see the government, elected by the people and supposedly for the people, act in the interests of the rich and powerful.While Apple first set up in Cork in 1980 it wasn’t until 1991 that the Irish government granted the company a tax reduction. The Minister for Finance in 1991 was Albert Reynolds, with Bertie Ahern taking over the position in November of that same year. In 2007, when the second tax reduction was granted, Bertie Ahern had become the Taoiseach and Brian Cowen the Minister for Finance.
"It is astounding that our democratically elected government is prepared to fight the EU in the interests of the most profitable company in the world, and at the expense of its own people..."
The pro-Apple favouritism was passed from the Fianna Fail government to Fine Gael following the ’08 financial crisis and the 2011 elections. Under the leadership of Enda Kenny the granting of illegal tax reductions continued as Michael Noonan presided over the Department of Finance. This was at a time when that department was inflicting severe austerity measures on the country in order to pay back debt accrued by bailing out private banks. However, unlike with the Apple tax ruling, at no point did the Irish government seek to appeal against the austerity measures handed down by the Troika.The policy of austerity, so passively implemented by Fine Gael, was both incredibly destructive for those at the lower ends of the wealth distribution scale and damaging for our economy’s balanced recovery. It did however, benefit the rich. In 2010, according to CSO figures, those in the lowest income band saw their disposable income fall by 26%, while those in the highest income band saw their disposable income rise by 8%. Additionally, the 2013 budget saw a 1.3% increase on taxes for those earning €20,000 a year contrasted against a 0.2% increase on taxes for those earning €100,000 a year and only a 0.1% increase on taxes for those earning €200,000 a year.The sale of state assets at rock bottom prices was an opportunity not to be missed by large ‘vulture funds’, and was yet another beneficial profit making opportunity our government offered to the super-wealthy. A prime example is that of Promontoria Eagle, an Irish subsidiary of the US private equity giant Cerberus, set up by Dublin-based Structured Finance Management. In 2014 the equity firm bought Nama’s Project Eagle loan book, valued at €5.6bn, for a heavily discounted price of €1.6bn, according to the Sunday Independent. Not only were foreign equity funds able to acquire massive amounts of state assets for far less than they were actually worth, but they then proceeded to avail of Ireland’s preferential tax treatment for wealthy businesses.Promontoria Eagle benefitted from a Section 110 tax status, established in 1997 under Fianna Fail. This meant that the equity firm, who had collected repayments of €86.07 million between April and December 2014, paid just €2,500 in tax. This is an effective tax rate of 0.0029% of Promontoria Eagle’s total revenue. This is down to the company only declaring a profit of €9,165 while simultaneously declaring operating costs at €50 million.The problem is that Promontoria Eagle lawfully engaged in an extensive range of financial transactions in a tax-neutral manner due to their Section 110 tax status: as long as payments out match payments in, Section 110 securitisation vehicles pay essentially no tax.While corporations and equity funds make billions from buying taxpayer owned state assets at slashed prices we are experiencing never before seen levels of inequality. A November 2015 report, by the economic think-tank TASC, highlights this. According to the report, the top 10% of the population hold over half of the country’s wealth, while the bottom half of the distribution maintains just 4.9% of net wealth.
"While corporations and equity funds make billions from buying taxpayer owned state assets at slashed prices we are experiencing never before seen levels of inequality.”
Yet another example of our ‘government for the rich’ came in July of this year, when figures released by the Central Statistics Office (CSO) showed a GDP growth of 26% in 2015. This of course, was nonsense. The massive growth in GDP, on paper at least, was as a result of foreign companies undergoing corporate restructuring and re-locating assets to Ireland, avoiding paying tax on their revenues in other jurisdictions. This growth in GDP did not lead to job creation or general economic well-being in any way. Instead, the enormous hike in our GDP figures meant that Ireland’s EU contribution increased by €280 million. The conclusion being that the people of Ireland had to pick up the bill for large foreign corporations: we directly subsidised their tax avoidance. The government did not kick and scream, nor did it appeal.The policies which we have seen the likes of Fianna Fail, Fine Gael and their coalition partners implement for decades, are products of the current dominant economic ideology. While many in government have unquestionable faith in the dominant economic thinking, it is nonetheless a flawed ideology. When societies are unjust, for example, in the distribution of wealth, we can expect the emergence of flawed ideologies as it provides ways of rationalising undeserved privilege. These ideologies are usually held by dominant sectors of society and, as a result, become the way of thinking for privileged groups or those in power, eventually permeating throughout society as a whole. This is not to suggest that there is some overarching conspiracy by elites at play. Rather, ideology is deeply embedded in society and, even if it is flawed, may be genuinely believed.Ideology may be best understood as a pair of glasses. Having on a certain pair of glasses allows you to see the world in a specific way. Western economic policy since 1970s and ‘80, known as neo-liberalism, has provided for a way of rationalising decisions that disproportionately benefit the wealthy in our society. To continue the current trend of economic policy-making would be to continue a deeply unjust economic system. Austerity and the Commission’s Apple ruling has been the canary in the ideological mine. It is now time to remove the glasses, that for so long have blurred our vision, and fix the systemic injustices that we have created.