OREANDA-NEWS. The European Commission's ruling that Apple should pay Ireland ('A'/Stable) up to EUR13bn has mixed implications for the country's sovereign credit profile, Fitch Ratings says. It could result in a substantial one-off improvement to Ireland's fiscal position, but may also add to medium-term economic uncertainty and increase political risks.

The Commission said on 30 August that Apple should pay up to EUR13bn in taxes, plus interest, to the Irish government, because Apple's tax arrangements enabled it to pay less than other companies and were illegal under EU state aid rules.

The ultimate outcome may be unknown for some time. Apple has said it will appeal the decision, as has the Irish government - a process that could take several years. The Commission has said the amount could fall, depending on developments in other jurisdictions.

If upheld, the Commission's ruling would represent a substantial one-off fiscal windfall for Ireland. Excluding interest, the payment to the Irish government could amount to around 5.1% of 2015 GDP. If used to pay down debt and/or reduce borrowing rather than spent, this would accelerate the improvement in public debt dynamics that has been driven by fiscal consolidation and robust nominal growth.

Our current forecasts see gross general government debt falling to 63.7% of GDP in 2020, down from 78.7% at end-2015. These do not factor in any impact from the Apple ruling but do incorporate the large upward revision to 2015 growth announced in July, mainly related to the reassessment of intangible assets of re-domiciled Irish companies and contract manufacturing.

It is possible that any such benefit would be partly offset by increased uncertainty over Ireland's attraction to global businesses potentially damaging FDI and employment. We think this risk is limited. Ireland's low 12.5% corporate tax rate, and its high human development and governance indicators should keep the business environment attractive to multinationals, and the costs of relocating would be large. But the Apple ruling could add to uncertainty created by the UK's Brexit referendum, which we think will slow export and investment growth.

Notwithstanding the government's repeated announcements to appeal, including a cabinet decision on Friday to formally lodge an appeal against the European Commission, divisions within the coalition have become more evident. This shows the challenge that the Fine Gael-led minority government faces in formulating and enacting policy. It has already been outvoted in parliament on some minor economic issues since its formation in May. A more unstable political backdrop would add to fiscal and economic risks.