Apple… Incentives… Shared Services… Ireland – What's the Connection?
Apple and Ireland have been much in the news lately. And while it's nothing new that Ireland has long courted foreign direct investment through attractively low corporate tax rates, quite what this, coupled with advantageous transfer pricing, translates to has no doubt been a surprise to many. That whole story is too big a nut to crack in this column, however, and best left to the EU and its advisors.
Closer to ‘home,’ the fiasco around Apple’s operations in Ireland is causing a few stirrings in the international community. With the shock of the Brexit implication still fresh in our minds, this example of a foreign corporation leveraging a low-cost location, and the potential fallout, is causing a sober reassessment of "location" as a value driver [Amazon’s Luxembourg HQ has raised similar concerns, as has Starbucks in the Netherlands].
But as far as repercussions are concerned, that's probably where the similarity between Apple’s Irish problem and Irish-based Shared Services Organizations stops. None of the practitioners I spoke with today saw any real reason for concern.
"The debate around transfer pricing is nothing new," says David O'Sullivan of Chazey Partners, a Dublin based shared services expert and consultant. "Shared services are not generally tax driven, even where they are set up as their own legal entity. The popularity of India or the Philippines, for example, has little to do with tax rates and everything to do with accessibility to skilled staff at competitive cost," he says.
But the kerfuffle that the EU ruling has stirred up is certainly driving sentiments on the political side of the equation. Given the sensitivity of US politicians to ‘outsourcing’, any headline that smacks of offshore advantage is bound to gain a lot of attention. And while the multitude of US corporations that have accepted Ireland’s hospitality [and loophole] for their European businesses may be facing a somewhat less attractive future, where Shared Services are concerned – and Ireland is one of Europe's most popular locations – there is little reason to expect the ripple effect to extend to the service delivery model.
“I don’t believe this will have any impact whatsoever on Shared Services operations in Ireland,” says Nigel Coffey, Senior Director of Finance Process Transformation at PepsiCo’s Irish-based European SSC. “I don’t see taxation benefits as key drivers for making the decision to base Shared Services operations in Ireland. From my perspective, the availability of key talent with multilingual capability is the primary driver. That won’t change as a result of the Apple decision or Brexit,” he claims. “In fact, I believe Ireland will continue to be attractive for Shared Services operations – perhaps even more so in the coming years as Brexit’s impact becomes felt.”
However, too often we see a knee-jerk reaction based on subjective evaluation of facts, rather than the facts themselves, as David O’Sullivan readily acknowledges. And if Ireland finds itself scrutinized a little more than it’s been used to, and corporates think twice before setting up shop in Dublin, then a possible knock-on effect may be a hesitation in co-establishing any Shared Services activity alongside a European HO.
But just as we are adjusting to the fact that Brexit may take years to have an impact, Apple’s tax problems, too, will probably drag out.
What is clear, however, is that any new “offshore” set-up, whether in Ireland or elsewhere, will continue to be subject to strict scrutiny. But with Ireland still one of the most popular locations for European SSOs, and Shared Services’ popularity growing – particularly with the new focus on “nearshore” support – chances are the Emerald Isle’s popularity will not be diminished by Apple or anyone else.
1. SSON’s Dart Institute[Data Analytics Research and Technology] – The Evolution of UK & Ireland Shared Service Centers from 2000-2015