LONDON: When it comes to Ireland and tax reform, there’s good news and bad news. The good news is that a combination of domestic and global forces have been nudging what many see as a tax haven towards a healthier future, regardless of the outcome of an imminent ruling by the European Commission about an alleged sweetheart deal with Apple . The bad news is that the UK’s vote to leave the European Union risks throwing everything back up into the air.

Back in the pre-2008 days of Ireland’s Celtic Tiger economy — and for some time after the ensuing bank-led bust and EU bailout — Dublin placed tax at the heart of its appeal to international investors. Shifting operations to Ireland was partly about the low headline 12.5 per cent corporate tax rate. But it was also about the interplay between Irish and foreign tax systems that enabled wily multinational firms to reduce their tax bill still further.

These mechanisms, with intriguing names like “Double Irish” and “Dutch sandwich”, differed in complexity and from one company to another. But most took advantage of the difference between the American tax system, which allows overseas arms of US-based groups to defer paying tax on overseas profit, and the Irish one, which allowed companies incorporated in Ireland to be not resident there for tax purposes.

Apple, purveyor of iPhones and other gadgets, benefited richly, according to a 2013 report by the US Senate’s Permanent Subcommittee on Investigations. American tax rules allowed it to keep over $100 billion in cash and cash equivalents offshore without attracting a US levy, while Ireland’s rules meant it could be based there without a large tax bill.

The Senate subcommittee estimated that using domestic and offshore loopholes Apple had saved $44 billion in taxable offshore income between 2009 and 2012, and in Ireland paid a tax rate of less than 2pc. The European Commission is probing the extent to which Ireland’s arrangement with Apple merits censure under its state aid laws. In his Senate testimony in 2013, Apple Chief Executive Tim Cook defended the company’s practices, saying it complies fully with laws and the spirit of those laws, and that Apple pays all required taxes in the United States and elsewhere.

Whatever European authorities determine, and a ruling is likely within a few months, there are signs that Ireland sees the need for reform. In 2014 it changed its laws, requiring that companies incorporated in the country had to be tax resident. It has also been saying all the right things about the OECD’s so-called base erosion and profit-shifting initiative, known as BEPS, a concerted global push to tax companies on profit in the jurisdictions where economic activity takes place. Corporation tax brought 6.8 billion euros to the Irish exchequer in 2015, up nearly 50pc on a year earlier.

Together with a separate European drive for country-by-country reporting of profits, this may make it less likely Brussels throws the book at Dublin — or at Apple, which could be forced to cough up hefty back taxes. With tax loopholes globally unraveling, Ireland can still boast EU membership and an educated English-speaking workforce on top of its low headline tax rate. Add a so-called knowledge development box, a special regime for profit from some research and development activities carried out in Ireland, which comes with a headline tax rate of just 6.25pc, and multinationals may still like what they see.

In any event, Ireland isn’t necessarily wholly dependent on big global companies. Multinationals do account for a quarter of its gross domestic product, according to government figures cited by John FitzGerald, an Irish academic. But FitzGerald has questioned the benefit they bring because most of the profit they accumulate is waiting to be remitted to the companies’ home countries. As such, the income may not really be considered part of Ireland’s gross domestic product. The country’s 256 billion euro GDP is 50 billion euros higher than gross national product, which measures the output generated by Irish people and entities everywhere rather than by both citizens and foreigners within Ireland’s borders.

The disparities of the reliance on multinationals can, on occasion, make Dublin look silly. On July 12 it sheepishly revealed its 2015 GDP growth had been upgraded from 7.8pc to 26.3pc, owing to the impact of foreign firms shifting their domicile just to cut their tax rate. These so-called inversions have provoked political ire in the United States. Against that Apple does employ over 5,000 people in Ireland, and they pay personal taxes.

This is where Brexit casts a shadow, however. On July 4, outgoing UK Chancellor of the Exchequer George Osborne said he was toying with the idea of cutting Britain’s corporate tax rate below 15pc. Other European states could follow suit.

Published in Dawn, July 17th, 2016