Apple’s European Tax Woes Put Dublin’s ‘Googletown’ on Edge

Updated on
  • Fitbit CEO says Apple affair won’t affect Dublin expansion
  • Irish politicans fret that EU ruling will tarnish reputation

Lights illuminate the office space at Google's European headquarters in Dublin, Ireland.

Photographer: Simon Dawson/Bloomberg

James Park flew into a storm as he arrived to open Fitbit Inc.’s new offices in Dublin last week, one day after Europe slapped Apple Inc. with a record tax demand in Ireland.

While young workers for the San Francisco-based maker of wearable fitness trackers chatted on treadmills nearby, Park swiftly dismissed any suggestion that the Apple case could derail his plan to double the size within two years of Fitbit’s operation, located close to the banks of Dublin’s Grand Canal.

“Nothing that has happened changes that plan,” said Park, adding that Ireland’s lure for technology companies is intact even after the European Commission told Apple to pay the country 13 billion euros ($14.5 billion) in unpaid taxes. “I don’t think executives in the U.S. would get too confused by popular sentiment or by the press.”

James Park, chief executive officer of Fitbit Inc., speaks during an event at the 2016 Consumer Electronics Show (CES) in Las Vegas, Nevada, U.S., on Tuesday, Jan. 5, 2016. Photographer: David Paul Morris/Bloomberg

James Park..

Photographer: David Paul Morris/Bloomberg

For Ireland, the view of executives like Park matters. A lot. The country’s 12.5 percent corporate tax rate, the lowest in Western Europe, has made Dublin the European home of choice for U.S. technology companies. One city center neighborhood nicknamed “Googletown,” has the search-engine giant’s 15-story European headquarters looming over quaint houses in the narrow streets. Any cloud over the tax regime risks hurting the investment that has driven Ireland’s economic recovery, and experts are divided over the impact of the EU’s Apple ruling.

Divided Opinion

“Undoubtedly what the commission has done is going to damage foreign direct investment,” Martin Shanahan, chief executive of IDA Ireland, the agency in charge of wooing companies to Ireland, said in an interview with Bloomberg Television.

The question is how big a blow the decision is. In the aftermath of the ruling, Moody’s Investors Service said the Apple case could tarnish Ireland significantly.

“Companies need certainty over tax arrangements, both in prospect and retrospect,” the ratings company said. “The EU ruling creates uncertainty among Ireland’s current and potential foreign investors, and is hence credit-negative for Ireland.”

Limited Choice

Fitch Ratings is more relaxed. It pointed out that the EU case is not a generalized attack on Ireland’s corporate tax rate, but focuses on a so-called sweetheart deal Apple struck with the nation’s authorities. Fitch said relocation costs and the low tax rate should keep Ireland competitive in the fight for global investment.

David Schnautz, an analyst at Commerzbank AG, agrees.

“Where are these companies going to go? Not the U.S. because the tax rate is so high. And not the U.K, because of Brexit,” Schnautz said. “Somewhere English-speaking like Malta probably just couldn’t handle a beast the size of Apple. So, as long as Ireland saves faces, defends the business model, it should be fine. ”

Yet, given the significance of multi-nationals within the economy, the government says it can’t afford to risk any lingering doubts over its tax regime, and is launching an appeal against the EU ruling. The nation’s parliament backed the cabinet’s decision to fight the ruling late Wednesday.

The Montevetro building, which will house the new European headquarters of Google Inc., left, and Gordon House, the current European headquarters of Google Inc., are seen on Barrow Street in Dubin, Ireland, on Wednesday, Feb. 8, 2012. Ireland will give a tax break to ''key'' overseas workers who are assigned to work in the country, Finance Minister Michael Noonan said in an e-mailed statement. Photograph: Aidan Crawley/Bloomberg

The Montevetro building, which houses the Google headquarters in Dubin, Ireland.

Photograph: Aidan Crawley/Bloomberg

No Special Treatment

Ireland’s stock of foreign investment amounted to almost 500 percent of the economy, making it the second-largest recipient in the EU after Luxembourg, according to Moody’s. Companies like Facebook Inc. account for about a fifth of private-sector employment in Ireland.

QuickTake Profit Shifting

Back at Fitbit, Park said Ireland might need to deal with a perception that U.S. companies get special tax deals. As yet, the EU has not started any other investigations linked to Ireland, although the Sunday Business Post reported that as many six further cases may be in the offing.

“It’s all of our jobs, the press, companies and government to state the truth,” said Park. “I don’t know about Apple, but we haven’t received any special treatment and we don’t expect to.”

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(Adds parliamentary backing for appeal in 11th paragraph.)
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