The European Union’s demand that Ireland claw back billions in tax from Apple (AAPL) has hit the country’s reputation as an investment destination just as it eyes up opportunities from Brexit, but officials say the damage will be limited.
Apple and the Irish government are both appealing against last week’s European Commission ruling that the company’s low tax bill in Ireland, where it is among the biggest multinational employers, constituted illegal state aid.
A campaign to redress the impact abroad has already begun and officials and multinational advisors say they are confident the order that Apple cough up 13 billion euros in back taxes will not interrupt record flows of investment into Ireland.
A string of controversies over corporate taxation had already prompted Ireland to begin phasing out the tax structure used by Apple.
“The Commission’s decision has been reported around the world, it’s a global story and some people obviously won’t get past the headline. That’s problematic for Ireland,” said Martin Shanahan, chief executive of IDA Ireland, the state agency in charge of attracting foreign direct investment.
“When IDA tries to attract companies in, those companies work on the basis that the taxation system is what is laid down in law. The Commission decision calls into question whether that is the case and that’s unhelpful, not just for Ireland.”
Shanahan, who began the damage limitation with a series of media interviews in London within hours of the ruling, will use Brexit-related trade missions to London, New York and the U.S. West coast to provide clarity for investors in the coming weeks.
Ireland is hoping for a bonus from Britain’s June vote to leave the EU, which leaves it as the only English-speaking country offering a base in the euro zone and a future in the bloc. It had more than 35 concrete enquiries by the end of last month from financial groups looking at setting up a base or expanding in Ireland as a result of the Brexit referendum.
Shanahan, who oversees the strategy responsible for around 190,000 jobs or almost one in every 10 Irish workers, said the huge increase in inquiries has continued and he did not see the Commission’s ruling damaging those prospects.
On Wednesday, Russian antivirus firm Kaspersky Lab announced the opening of its first European research and development center in Dublin, where it will create 50 jobs by 2018, the fifth such announcement since last week’s Apple ruling that has included new investments from Coca Cola and wearable fitness device maker Fitbit Inc.
Robust Defense
Tax advisers who pitch Ireland as an investment location on a daily basis say the Apple decision has been no more than a topical subject for potential investors, as the arrangement used by the iPhone maker is no longer available for new entrants.
Ireland moved to shut down the “Double Irish” tax loophole in 2013 following damning criticism from a U.S. Senate committee investigation by making it illegal for a company registered in Ireland to have no tax domicile anywhere.
“Awareness at a board level regarding international tax structures and associated tax and reputational risk grew on the back of that,” said Kevin Doyle, international tax partner at BDO, referring also to an investigative reporting series that heightened the international debate on corporate tax avoidance.
“The initial conversations with potential FDI companies has evolved over the last number of years. With new set ups, there’s less and less discussion about implementing aggressive tax structuring.”
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Ireland has been here before. It launched a diplomatic offensive in 2013 to reject the U.S. Senators’ accusations that it acted as a tax haven for companies like Apple, issuing its embassies from Beijing to Buenos Aires with rebuttal points.
The strategy worked. The IDA continued to add jobs in 2014 and posted a record year in 2015, meaning foreign multinationals now employ over 20 percent more workers than they did a decade ago, before the ‘Celtic Tiger’ boom gave way to a spectacular economic bust.
A similar response will be mounted this time, to fight back against “detractors who paint a cartoonish and negative image of Ireland,” as Finance Minister Michael Noonan said on Wednesday.
Officials used the hosting of an American Football game in Dublin last week to press their case with the heads of Coca Cola and State Street while ambassadors from over 80 countries, also in Dublin for a meeting on Brexit, were briefed by Noonan.
“When we talk about damage to the reputation, if we step back, yes, it looks very bad,” said Eoghan Murphy, the junior minister leading the charge in trying to make sure whatever business leaves Britain’s financial center ends up in Ireland.
“But when we actually talk to the different sectors, they understand what’s happening, they understand the overreach by the Commission. That doesn’t mean we don’t have to go out and robustly defend ourselves, and we will.”
