(Bloomberg Opinion) — Irish rocker Bono once said Ireland’s low-tax, pro-Big Tech economic model had brought the country of 5 million the only prosperity it had ever known. But that prosperity came at a price, from lost investment at home to lost reputation abroad as huge taxable profits vanished under countries’ noses. Now that judges in Luxembourg have backed an order for Dublin to claw back €13.8 billion ($15.2 billion) in benefits illegally granted to Apple Inc., what happens next should compensate all victims of a broken corporate tax system and fix it for the future.
Willingly forgoing billions in taxes doesn’t just happen overnight with a wink and a fax from the Irish finance ministry. It’s the grim conclusion of decades of aggressive tax planning from multinational corporations and their advisers shopping for the best deals; cutthroat competition between countries driving tax rates inexorably downward; and a huge creaking edifice of laws that offer tantalizing loopholes in the digital age. The code that effectively granted Apple’s Irish unit a tax rate of 0.005% was one low point among many during the boom in profit-shuffling, patent-licensing chains used by everyone from Alphabet Inc. to Starbucks Corp.
There’s a chance to change things for the better. The Apple case has already served as a lightning rod since Brussels began investigating it in 2014: Egregious loopholes have been closed, and an unprecedented global push for reform has led Ireland to increase its corporate tax rate to 15% from 12.5% (for some firms.) Redirecting the €13.8 billion windfall into Ireland’s government coffers will help Dublin realize what its dependence on corporate smoke and mirrors has cost its citizens, from underinvestment in infrastructure to a housing shortage. Mario Draghi’s bumper report on the European economy this week noted that Ireland’s education and research spending was well below average; fresh funds can help fix that.
A lot more still needs to be done, though, in a system where closing one tax-efficient door opens another somewhere else. It’s time to implement global proposals to overhaul where multinationals should pay tax — ideally where their customers are rather than where papers get shuffled — and the rate they should pay. The former is being held up by US political gridlock; the latter is being undermined by delays and the dilutive effect of carveouts. Any deterrent effect so far has been small: The EU Tax Observatory estimates that a whopping $1 trillion of corporate profits was shifted to tax havens in 2022, or about 35% of total foreign profits — a rate that’s been more or less stable since 2015. But these proposals are conservatively worth at least $220 billion in extra tax revenue worldwide (around 8% of what was collected last year.)
Pascal Saint-Amans, who served as broker of the global tax deal while at the OECD, tells me this is the real significance of the Apple case. “It will add to pressure to overhaul how multinationals allocate their profits around the world and get taxed,” he says. “In an ideal world it should not only be Ireland staking a claim on Apple’s taxes but also other European partners and markets where their goods are sold.”
Maybe instead of only making amends at home, Dublin should also use the €13.8 billion as an olive branch with the rest of the world. The EU Tax Observatory reckons corporate-profit shifting cost EU countries about 20% of corporate tax revenue collected — it’s not just the Irish who lost out on housing, hospital beds or teachers. Big countries with large consumer markets where iPhones are sold and App Store fees paid will have a claim on some of Ireland’s windfall, and this could be a good time to put into practice fairer ways to distribute multinational taxes. What Bono never mentioned is that for low-tax jurisdictions to strike it rich, others have had to strike it poor.
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Lionel Laurent is a Bloomberg Opinion columnist writing about the future of money and the future of Europe. Previously, he was a reporter for Reuters and Forbes.
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