There are two equally valid, yet seemingly incompatible, ways of viewing Apple Computer’s relationship with Ireland. The first way, which is the one that Apple and the Irish government prefer, is embodied in the Apple campus that sits near the corner of Harbour View Road and Ardcullen, in the Holyhill Industrial Estate, not far from the center of Cork. The buildings are filled with employees doing meaningful work. There is a small manufacturing operation, the only factory actually owned by Apple, assembling iMacs. There is a logistics operation, serving Apple Stores all over Europe. There are marketing people and technical-support pros, able to solve problems in nearly every European language. Apple first came to Cork in 1980, when Ireland was still a barely developed agrarian country, hemorrhaging ambitious citizens to London, Paris, and New York. This version of Apple, the physical one, deserves no small bit of credit for helping to give birth to the Celtic Tiger, the transformation of northern Europe’s most miserable economy into a prosperous center of finance, manufacturing, and high technology.
But there’s another Apple that sort of exists in Ireland, and also sort of doesn’t. That Apple is the one that is causing some international distress this week. People in the know—there aren’t many—simply call it A.O.I., short for Apple Operations International. And this version of Apple is much harder to pin down; it’s something like a quantum corporation whose very nature depends on who is observing it. A.O.I. is, in one sense, huge, among the largest companies that ever existed, with more than two hundred billion dollars in assets. It is also as small as a company can be, with no physical address and no employees. Phillip Bullock, the head of tax operations for Apple, told a U.S. Senate committee in 2013 that “A.O.I. is incorporated in Ireland; thus, under U.S. law it is not tax resident in the U.S.” That seemed clear enough until his next sentence. “A.O.I. is also not tax resident in Ireland because it does not meet the fact-specific residency requirements of Irish law.” It’s Irish, according to American law; not Irish, according to the Irish. A.O.I., in fact, does not legally exist anywhere, even as it takes in much of the profits from Apple sales outside of the United States.
These sorts of tax-avoidance shenanigans have become a source of political fury in the U.S. and much of Europe. The damage done by American firms finding ways to pay (or not pay) taxes in other countries is one of the few issues about which Hillary Clinton and Donald Trump seem to broadly agree. Companies need to exist somewhere, and they have to pay their rightful taxes in the place where they exist. Tax policy should be unequivocal, Newtonian: if you are here, you can’t also be not here. The one entity, other than Apple, that didn’t see anything wrong with A.O.I.’s imprecise relationship to Ireland was the Irish government itself, which had enthusiastically supported Apple’s use of its Irish/not-Irish status to pay no taxes at all. (Apple does have much smaller, local subsidiaries that pay an annual tax bill in the hundreds of millions of dollars. Apple executives do say they will pay taxes on all of A.O.I.’s wealth one day, most likely whenever the U.S. government reforms its tax code to allow for a less costly return of profits to American shores.) Irish authorities have become among the world’s leading taxation tinkerers. There’s the Double Irish with a Dutch Sandwich, a complex scheme in which Google and others would form two distinct Irish subsidiaries, a Dutch subsidiary, and another in one of the small island offshore havens. Profits are passed from one subsidiary to the next, moving, on paper, from Ireland to Holland to the Caribbean, then back to Ireland. (Ireland isn’t alone in creative tax-avoidance entrepreneurship; there’s also the Singapore Sling, the Bermuda Black Hole, and countless others.)
This all came to a head this week, when the European Commission determined that the Irish government must, even against its will, demand back payment of thirteen billion euros in tax that Apple allegedly avoided paying between 2003 and 2013. The ruling held that Ireland is perfectly free to set its own tax rates but that, in this case, it had done so in violation of European anti-competition laws. The commission argued that Ireland had, effectively, partnered with Apple in a scheme to harm taxpayers, competing companies, and other European nations. The Irish government and Apple, which have denied making any illegal deals, are expected to begin a series of appeals, and Apple is unlikely to be forced to actually cut a check for years, if at all.
Ireland’s finance minister, Michael Noonan, meanwhile, has warned that if Ireland demanded Apple’s money it would “be like eating the seed potatoes and destroying the future for people for short-term advantage now.” Forced to pay billions, Apple and other large companies might decide to leave Ireland or not to set up business in the first place. Noonan’s anxiety makes it hard to see where Ireland is going, economically. Is the Ireland of the real Apple—the physical place with people doing things that produce profit—going to dominate, or will it be the Ireland of tax-free fictions and arbitraging loopholes in a complicated global economy?
Ireland’s economic transformation in the course of the past thirty-five years was remarkable in many ways. Up until the early nineteen-eighties, Ireland’s income per person was one of the lowest in Europe, right alongside Greece’s. Unemployment was well above sixteen per cent for much of the nineteen-eighties. The country’s income began to hurtle upward after 1995. Dell, Intel, and Microsoft joined Apple in Ireland. Large pharmaceutical firms also came, and now more than half of Irish exports are pharmaceuticals. At first, these big firms were excited to find people with advanced degrees willing to work at a fraction of what American, French, or German workers are paid. By the early two-thousands, Ireland’s per-capita gross domestic product was higher than that of the U.S. or the U.K., and fully a hundred and thirty per cent of the European average. For the first time in Ireland’s history, the country experienced net immigration. Alongside the new economy of high-tech and pharmaceutical companies, Ireland continued to develop its agricultural businesses, especially food manufacturing. Ireland is now a major exporter of snack foods and dairy products. For the first few decades, this growth seemed to have been based on something beautiful and right: the Irish had always been highly educated, clever, and hardworking, and they were now earning what they deserved.
But, alongside this “real” economy, Ireland developed a fantasy one, based on exploiting accidental quirks in European and global markets. This helped fuel a local housing and finance bubble that exploded, causing long-term pain. But both before the financial bubble and afterward, Ireland's primary global sales pitch was that the country offered multinational firms a twofer: you can get your tax avoidance and a qualified, English-speaking workforce all at the same time. The Cayman Islands, with a population a tenth the size of Dublin’s, can’t offer that. Even for companies that don’t employ the fancy Double Irish-like tax schemes, the country’s base corporate rate is 12.5 per cent, one of the lowest in the developed world. And, as the European Commission asserts, the government has long been willing to coöperate with firms that both employ locals and use creative approaches to tax accounting. For the Irish, this has worked out quite well. Apple employs nearly six thousand people in fairly high-paying jobs. For a country with fewer than five million people, this is extraordinary. The equivalent in the U.S. would be a company with four hundred and twenty thousand high-paying jobs. Only Walmart and, arguably, McDonald’s have more. Toss in Google (another six thousand jobs), Intel (fifty-two hundred), Microsoft (two thousand), Dell (twenty-five hundred), and all the others, and it’s clear that Ireland has done very well with this two-pronged plan, an economy built on the simultaneous provision of competitive work and legalistic, tax-avoiding fantasy.
Ireland’s modern growth came at a relatively benign time in the global economy. Economists and pro-trade activists called it “The Great Moderation.” The world was going to be more global, richer, happier. Everybody was going to look a lot like Ireland. In that world, who cares if some countries turn a blind eye to tax-avoidance schemes? We’ll all be richer in the future and can sort the grubby business out later.
But things look different now. This has been a brutal summer for Ireland. I visited the country a few weeks ago and kept hearing that Brexit might hurt Ireland far more than it hurts the U.K. itself. Ireland’s economic health is based on its exports, and nearly all of its exports go through England. A post-Brexit England will likely involve trade frictions and complexities that will hurt Ireland. The long-term devaluation of British sterling may hurt Ireland even more, as its export-oriented manufacturers find it hard to compete with cheaper British exports. In this moment of fear, it’s understandable that the Irish government is panicking over the Apple ruling, afraid it might be a further inducement for large foreign corporations to abandon the country and send it back to penury.
The hardest faith to have, today, is that the future will be better, that steady, broadly shared economic growth will return. This is particularly bad news for smaller countries such as Ireland that have prospered by living on the edges of a growing global economy. Today, the major players—the U.S., Germany, China, and the U.K.—don’t feel so generous and hopeful. And they get to write the rules. A secure Ireland, one that will be economically healthy for years to come, needs to be built on a “real” economy, one based on strong investment in innovation, manufacturing, and valuable services that other people want to pay for. It needs to be based on things done in Ireland, by people who live in Ireland—who pay Irish taxes.
