Ireland may have to revise its annual GDP figures for the past decade following the European commission’s ruling that the majority of Apple’s overseas profits should have been taxable in the Republic.
Europe’s competition watchdog ruled on Tuesday that the company owed the Irish government €13bn (£10.9bn) in unpaid taxes on profits from international sales routed through subsidiaries in Ireland. When interest is added the final bill could reach €19bn.
“If the European commission have ruled this profit should be taxable in Ireland, it should be reflected in the GDP numbers,” said Seamus Coffey, lecturer in economics at University College Cork.
He believes the revision, which could be required by the European statistics agency Eurostat, could show that the Irish economy was growing between 6% and 8% a year from 2010 onwards. This would represent a dramatic change, at least on paper: Ireland’s GDP shrank in 2012 and growth was recorded at zero in 2011.
“The commission is essentially reallocating the profits from the US to Ireland,” said Coffey. “They are now saying the output produced in Ireland is billions higher. The 2015 number won’t change. What will happen is the years before it will rise up.”
Following this week’s ruling, which Apple has vowed to appeal against, Ireland must now recover unpaid taxes from Apple for the years 2003 to 2014. The cash will not transfer immediately to the Irish revenue. Apple’s chief executive Tim Cook has confirmed that a sum based on the commission’s calculations will be paid into an escrow account pending the end of the appeals process.
Apple books the vast majority of its non-US revenues through Ireland, and the amounts passing through the books of its two principal subsidiaries in the Irish Republic have been significant since 2010, when sales of the iPhone and iPad ballooned.
Between 2009 and 2014, Apple’s pre-tax earnings from outside the US rose from $6.6bn to $33.6bn. They were $47.6bn (£35.8bn) last year.
A statistical change in the rate at which the economy grew could have material consequences. In July, the finance minister, Michael Noonan, confirmed Ireland would have to contribute an additional €280m to the European Union budget to reflect a recent revision to its growth.
Ireland’s GDP grew by an astonishing 26.3% in 2015, according to revised statistics published by the government in July. The rate is nearly three times the highest level recorded during the so-called Celtic Tiger boom years and was far ahead of a previous estimate of 7.8%.
Nobel prizewinner Paul Krugman described the figures as “leprechaun economics”, while Sinn Féin MP Pearse Doherty said that the economy was now “so intertwined in international tax and accounting stunts that they bring with them a serious risk”.
The National Treasury Management Agency, which manages Ireland’s debt, said the jump was due to a number of large multinationals moving their tax domicile to Ireland. This led to a €300bn increase in the country’s capital stock, which records assets such as roads and hospitals but also intangibles such as intellectual property. This pushed the value of assets above €1tn for the first time.
“Whether by re-domiciling or by inverting, the reclassification of several large companies as Irish resident expanded the capital stock in 2015,” the agency said in a presentation in July.
Since Tuesday’s ruling, there has been speculation that the GDP leap may be linked to a change in Apple’s offshore strategy. The commission stated that its ruling only applied to the end of 2014 because the company’s two main Irish subsidiaries – Apple Sales International and Apple Operations Europe – altered their structures in 2015.
If Apple has reallocated more of its intellectual property, such as patents and branding rights to Ireland, the change could explain the €300bn increase in the value of Irish assets.
“We don’t know that what happened in 2015 was Apple,” said Coffey. “Maybe it’s spread across 40 companies. But the EU ruling did say that Apple restructured in 2015. We do know that a lot of intellectual property is moving to Ireland. With most companies it might be worth a couple of hundred million or a billion, there aren’t many companies where it’s on the scale of Apple.”
The speculation that a single accounting change at Apple might explain the massive swing in Ireland’s GDP underlines its importance to the economy. The firm employs 6,000 staff at its European headquarters in Cork, a significant proportion of the area’s 200,000 strong metropolitan population.
