[DUBLIN] An EU probe into a tax deal between Ireland and Apple is raising pressure for a tightening of a controversial corporate tax system helping the country accelerate away from crisis.
The attention will be on any changes in Ireland's draft budget to be presented this week.
In the face of strong criticism that Ireland's tax policy is unduly favourable and distorts investment decisions, Ireland and Apple insist that the arrangements for the US company's European headquarters do not amount to illegal state aid as defined by EU competition rules.
The investigation by European Union authorities in Brussels is putting the spotlight back on the tax strategy, following scathing attacks during US Senate committee hearings last year that accused Ireland of acting as a tax haven.
Ireland's strategy to attract companies has also been the target for frequent criticism from some EU leaders, notably in France, which objects that Ireland is undermining investment and tax revenues in other EU countries.
Ireland is pulling away from near bankruptcy and a rescue programme by the International Monetary Fund, EU and European Central Bank, and at the height of the crisis fought off pressure for it to raise its tax rates, arguing that this was a vital part of its recovery strategy.
But the continuing criticism has also triggered calls for compromise within the former "Celtic Tiger", which has successfully drawn big-time investors for decades.
"The government must tread a balance between appeasing the international community and retaining an attractive offering to entice multinational investment," Ian Kehoe, the editor of the Sunday Business Post, said in an editorial this past week.
"Change is coming in the budget," Mr Kehoe said.
That change is highly unlikely to affect the 12.5-percent corporation tax rate, a cornerstone of policy which is backed by all political parties.
Michael McGrath, the finance spokesman for the opposition Fianna Fail party, said the debate had moved on from the tax rate.
"It is now a debate on how our corporation tax system interacts with some of the world's largest multinationals who by their nature will seek to minimise the amount of tax that they pay around the world," he told AFP.
During the US Senate hearings, Apple said it had been paying an effective tax rate in Ireland as low as 2.0 per cent, just a sliver of the headline 12.5 per cent rate.
It also emerged that one Irish-based Apple subsidiary paid just US$10 million in taxes on US$22 billion in revenue in 2011.
The European Commission has taken a preliminary view that the tax arrangements with Apple agreed in 1991 (and later amended in 2007) gave the company an unfair advantage, constituting illegal state aid.
The case focuses on the issue of transfer pricing, where subsidiaries of the same company trade with each other, and whether Apple was able to mark up costs in these trades to arrive at a pre-determined, or "reverse engineered" tax bill.
Apple, in comments on the controversy, said it "has received no selective treatment from Irish officials over the years." Some commentators have predicted that Apple could owe the Irish exchequer 800-850 million euros (S$1.28-1.35 billion) in back taxes dating back a decade, but others put it much lower.
Seamus Coffey, an expert in taxation at University College Cork, said the amount would be only "a couple of million".
"There's been references to billions but that relates to Apple's intellectual property but Apple's intellectual property is not located in Ireland," he told AFP.
Apple's intellectual property rights - the brand, design and patents - are held elsewhere and licensed to other companies in the group for a fee, which can be offset against taxable profits in Ireland.
Dublin has said it will fight any adverse rulings in court.
Last month, the Organisation for Economic Cooperation and Development in Paris called for Dublin to close a tax loophole, known as the Double Irish - a method of shifting profits through Ireland to a low-tax haven to minimise tax.
Finance Minister Michael Noonan has long insisted that Ireland's corporate rules are open, transparent and statute-based and said last month that Ireland had "nothing to fear" from the OECD proposals to limit multinational tax avoidance.
Mr McGrath said the government should not respond impulsively in the wake of the investigation over the deal for Apple.
"I don't believe that we should panic and announce unilateral changes which could end up damaging Ireland's corporation tax offering, which is after all a key element of our inward investment strategy," he said.
More than 1,000 multinationals operate in Ireland, employing more than 285,000 people directly or indirectly - a huge number in a country of 4.5 million people - meaning the sector has massive importance as Ireland continues its economic recovery.
Apple, which set up in Ireland in 1980, has been followed by the next generation of tech companies such as Google, Facebook, eBay and Twitter.
"Multinational companies don't like uncertainty," said Jim Stewart, professor of finance at Trinity College Dublin.
"Uncertainty around Ireland's tax strategy means they may be unsure about increasing investment or workforce." - AFP