The c €7bn extra Apple charge Margrethe Vestager uncovered without even knowing it
A few weeks ago we had the “Leprechaun Economics” moment when our 2015 GDP jumped 26% on the final revised figures.
Noonan was out that this was an Billion:1 unusual “point-in-time” mix of end of year inversions and aircraft leasing deals (despite the fact that asset financing deals hardly affects GDP, as its corresponding loans nets off against the assets; one of the largest aircraft leasing cos like AERCAP NV, fully inverting to Ireland (which it didn’t), would only increase Irish GDP by c 3.5%). When it was also pointed out that the increase in our GDP would increase our annual EU GDP Levy by €380m, Noonan said no problem. Net of a few things (Noonan never really explained), the net effect would be €280m. Noonan pointed to the c €500m jump in our Corporate Tax take as evidence that ultimately, when you add it up, we are still quids in.
We all accepted Noonan’s logic and endured being an International joke and our National Accounts being an increasing work of fiction (something Seamus Coffey started highlighting back in 2013 (see the table below). I would guess we are far worse than Luxembourg now - in fact I would guess that if Seamus Coffey updated this table net of 2015, Colm McCarthy would have to apologise to Paul Krugman, as our GNI/GDP ratio is well below Luxembourg.
IRISH INDEPENDENT: Krugman missed the target … the leprechauns are in Luxembourg, not here, writes Colm McCarthy
SEAMUS COFFEY: 2013 GNI / GDP International Comparisons
RTE: Revised GDP figures will result in higher EU contribution, Noonan confirms
IRISH INDEPENDENT: ‘Leprechaun economics’ - Ireland’s 26pc growth spurt laughed off as ‘farcical’
The small print of Margrethe Vestager’s report has a bombshell inside it with regard to (another) cover up our Limerick ex. school teacher has executed, which Irish National Accounts Expert, Seamus Coffey, pointed out on his Economic Incentives blog on Tuesday.
SEAMUS COFFEY: Some take outs from the Apple ruling
The scale of Ireland’s GDP jump in 2015, is awfully similar to est. +€40-50bn IP value on Apple Ireland’s balance sheet.
So, it appears Ireland’s 2015 “Leprechaun Economics” GDP rise, was mostly due to Apple re-locating it’s IP on the Irish National Balance Sheet (probably in anticipation of the EU ruling, and Apple being afraid that the EU would challenge that if Apple Ireland’s IP lied outside of the EU, then it was ineligible to use the EU’s TP system). The timing of this move was sometime in 2016 (when the 2015 GDP was being finalised). In return for this re-location of Apple’s IP to Ireland, Apple was taxed by Ireland at at a c 1% “special” Irish Revenue rate (why our Corporate Tax take rose c. €500m in 2015 as well), and of course we took another “bullet” for Apple by covering up the source of the GDP increase and being labelled “leprechauns” (thanks Tim). However, because of this IP re-location, we have also taken on a permanent increase in annual EU levies of €380m which now need to integrate into our Apple €19bn economic decisions.*
(*) I will come to this in another post as it shows why Margrethe Vestager highlighted that other EU countries may want to examine Apple’s €19bn fine, as if they can prove that Apple Ireland’s IP was outside the EU (Apple can’t have it both ways - and it is a clever trap by Margrethe which Apple can’t wiggle out of), then all past EU TP flows are void (you can’t TP IP from outside the EU, and especially from a “stateless” location with no EU tax treaty). In this case Apple’s fine could easily double or even treble (given higher corporate tax rates of EU countries, and higher penalty rates).
So lets take out the calculator here regarding this €380m liability:
By housing Apple’s IP on our National Balance Sheet, we will incur a long-term increase of €380m in annual EU GDP levies. I think Apple will be gone within c 25 years so that is about €7bn in additional EU taxes Ireland incurs to take Apple’s IP onto our National Balance Sheet. In return for a c €500m once-off tax contribution in 2015 from Apple, we owe the EU €7bn.
Just to calibrate this, Coffey re-produces the table that the EU used (supplied by Apple) showing the profits Apple ran through its Irish tax avoidance scheme vs. Irish corporate tax paid. So in 2012, Apple routed €35,877m of EU profits through Ireland, but paid Irish corporate tax of €7m (this is Apple Cork). You can see from the table, that Apple was paying a 0.02% Irish corporate tax rate in 2012.
SEAMUS COFFEY: Does the arithmetic behind the €13 billion stack up, Sept 1st 2016?
It gets worse. Apple say they hire 5,500 people in Ireland (note: we know Google materially overstate their Irish workforce, but lets take this figure). Noonan’s IP deal with Apple (and given they pay c 0% Irish corporate tax), means that the first €69,000 in annual salary paid to each of the 5,500 Apple employees in Ireland, will go to covering the extra €380m EU GDP levy.
So we can have €19bn now (fines + interest), or we can get the excess of what Apple pay in average salary over and above €69,000 to each of it’s 5,500 employees in Ireland. Each €10,000 in average sale that Apple pay - on average - to this 5,500 over an above this €69,000 salary level, is worth €55m to Ireland (in total). That is about 345 years to recoup the €19bn.
I’m sure that another “deal” was done (i really hope so) that Apple would pay higher Irish corporation taxes going forward to make up for this €380m levy increase (if they aren’t, then this is another Section 110 scandal). The issue is that an ex. school teacher is doing private deals on massive scales, which we have no understanding of (and which, we are being deliberately misled on).
No wonder that Michael Noonan was so circumspect about the “leprechaun economics” GDP increase and its source.
Would Noonan, in return for a c €500m payment and a new Apple datacentre, sign us up to €7bn of additional EU levies.
Clearly, Apple must have agreed to a higher future Irish tax rate (to make up for this), but the Limerick school teacher is silent.
Do you still doubt what the EU is saying about us (or what we have written on the Vulture Fund Section 110 scandal) ?
These are the guys who brought us Irish Water. A major cock up (and scandal) at every turn. Where the water charges will only just cover the cost of replacing the water meters every 7 years; and ultimately our off-balance sheet Irish Water financing “scheme” was killed by the EU (despite our protests and deluge off media “spin”). We need to get an investigation in to this whole area.
An article from the Irish Examiner appeared noting that economists Karl Whelan and Seamus Coffey pointed out that Apple was most likely the source of the “Leprechaun Economics” rise in Ireland’s GDP.
IRISH EXAMINER: Apple tax affairs changes triggered surge in Irish economy
The Irish CSO responded, next day (a first !), to this Examiner article, with this reply:
IRISH INDEPENDENT: ‘Leprechaun Economics’ not all down to Apple move, insists CSO
Nobody doubts that the 2015 26% uplift contains a “mix of factors”, however what people are starting to realise is that c. 20% of the 26% (i.e. 77% of the uplift) is Apple.
The fact that the Government still wants to “cloud” the Apple impact on 2015 GDP is worrying. It hints that no offsetting deal was achieved for taking on Apple’s IP (and incurring EU levies).
However, as a purely “Irish Story”, this will get buried for a period (we saw the same Government phone calls go out to Irish media re the Section 110 scandal, until the evidence mounted).
It is very likely that the 130-page report and/or the Apple appeal process, will formally disclose the size of ASI’s balance sheet. Then it will clear as to what happened (and Michael Noonan will be long gone).
There is a wider issue that “Leprechaun Economics” bring up, around whether all of the “phantom GDP” that is housed on Ireland’s balance sheet, actually pays-its-way when the EU GDP levies are taken into account, as discussed in this post: