Apple and the ethics of taxation

St Augustine with iPad


The EU Commission ruled in 2016 that Ireland had illegally offered State aid to Apple in their tax arrangements. Like so many of the multi-national corporations based in Ireland, Apple were never heavily taxed here – paying about 1% of their profits in 2003. But by 2014, that rate had reduced to 0.005%. The calculations for the arrears that were due to the Irish state topped €14 billion.

The Irish Government appealed this decision. They spent more than €7 million – raised in part by income tax on the earnings of citizens – to have this ruling overturned. This week, that appeal was successful. To understand this superficially absurd situation – that the Irish State used taxpayer’s money to sue the EU so that they wouldn’t have to claim vast amounts of corporation tax – requires real concentration.

The position that the Irish State took was that the EU’s decision was erroneous in matters of fact – no special treatment was extended – but one cannot escape the conclusion that the appeal is a defence of sovereignty. By fighting this ruling, the Irish State insists that it can set its own tax policies, even if they are perceived as unjust by neighbours. Taxation policy has been shifting so that the ruling made in 2016 would not be relevant today, and it will surely shift further as the OECD tries to implement a global minimum corporate tax rate. Since low corporation tax has played such a significant role – although perhaps sometimes overstated – in Irish economic policy, the Government may feel it is important to maintain as much control over the detail of their codes as possible.

There will be much commentary on the details of this case. Some will argue that Ireland’s taxation policy effectively impoverishes others. Others will contend that the situation is created by prohibitive tax rates in the United States associated with bringing profits home. Many will understandably interpret this battle in the light of the huge costs associated with reacting to the pandemic.

Surprisingly, very little reflection in Ireland considers the fundamental problem laying underneath the specifics of policy: How is tax justified in the first place?

The theologian and lawyer, Allen Calhoun has researched this question extensively, both as a contemporary problem of policy and a historical issue within ethics. In a yet-to-be-published study he concludes that taxation policies tend to take one of two positions. Tax is either viewed as an instrument of justice, which ought to be shaped by concerns for the common good – such as meeting fundamental needs or reducing economic inequality or it is viewed as a tool of efficiency shaped so as to extract the maximum amount of income for the State with the minimal distorting effects on the freedom of the market. Those who view tax as an instrument of efficiency often argue that economic justice is best served by giving the market free rein, but that sort of justice is seen more as a byproduct than as a goal of tax policy.

The Irish State clearly views corporation tax policy in this second category, holding that its job is to raise revenues and that its policies achieve that end. Therefore, they are justified. But taken to a logical conclusion, these policies will eventually terminate in political bankruptcy. Citizens will tolerate a certain amount of unfairness for the sake of revenue, but eventually the discrepancy between their direct and indirect tax burden, and that borne by massive corporations, will become a scandal.

Calhoun remarks that the same situation would prevail if a government slavishly pursued the tax-as-instrument-of-justice approach. Recent history tells that story. Taxes on high earners used to be much higher. A quiet political revolution ensued – known in short-hand as neoliberalism – and as Paschal Donohoe will surely never tire of telling you, if you try to return to such tax policies, rich people will just leave. (In effect, that is what Apple is doing in Ireland in the first place, sheltering their profits from rates at home in the USA that they feel are confiscatory.)

Calhoun’s historical excavation demonstrates how this contemporary view of taxation policy – that it should be assessed based on how much is raised – echoes classical notions of tax. Roman philosopher and statesman, Cicero, for example, maintained that the State’s primary purpose was the protection of property. In this conception, taxation is a scourge, only to be called upon in the last resort. He would be most at home in contemporary Ireland, where the shareholder’s profit appears to be sacrosanct and tax collectors themselves fight for the opportunity to not collect revenues.

Christian economic thinking was radically different. It utterly rejected the idea that private property was sacrosanct, insisting always that it was relativised by public need – what Calhoun calls Necessitas. This revolution can be seen clearly in the area of taxation. Thinkers throughout the history of the church granted private property as a qualified right, which means that if you used it wrong, you lost it. These ancient thinkers have much to contribute to our modern considerations. Saint Augustine, for example, argued that if you use the things you own badly, then you are in wrongful possession of them and there is warrant to redistribute those possessions for rightful use.

From a Christian perspective, if a corporation is sitting on vast cash reserves in a time of global crisis, that is a problem. Augustine would declare that allowing this capital to lie idle when it could be used for productive purposes is a disaster which someone in authority should remedy. He would encourage the Irish Government to take that €14 billion and start building houses. Real material need swallows abstract ideological creeds.

Calhoun’s work is not just useful as an interesting historical retrieval. The path that we are on in viewing tax policy primarily in terms of efficiency is a return to the kind of society Cicero would welcome. That means a society where the needs of the poor are met by the generosity of the wealthy. While never for a moment diluting the obligation of the rich to be charitable, the Christian conception of taxation insisted that a common chest must be established to serve the common good and meet the material needs of the poor.

When we dig deep into the fundamental question of what tax is for, we find that the presenting policy problems become clear. A tax policy that aspires to perfect redistribution will always be defeated by the wealthy. A tax policy that aspires to perfect efficiency would eventually reduce all taxes to zero. A balance must be struck, and crucially, decisions like the one we have seen this morning demonstrate that the Irish Government’s zealous commitment to neoliberal efficiency is about ready to topple over on itself.

The current tax policies might make for strong GDP figures, but they profoundly weaken the fabric of our democracy by placing the comfort of the rich before the needs of the poor.