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News : Irish Economy Last Updated: May 31, 2013 - 10:36 AM


Apple, Anglo Irish Bank and Irish company law
By Michael Hennigan, Finfacts founder and editor
May 30, 2013 - 6:56 AM

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Just a week after the explosive revelations by a US Senate panel about the use by Apple, one of the world's biggest public companies, of what the software giant views as three stateless Irish companies, to avoid taxes on billions of dollars worth of revenues, the director of Corporate Enforcement in Ireland, reported on his office's company law compliance activities, which have been dominated by the former Anglo Irish Bank, for the past four years.

Ian Drennan, director of Corporate Enforcement, said on Wednesday:

“Insofar as the office’s activities regarding the former Anglo Irish Bank Corporation are concerned, 2012 was a year of two discrete elements. The first half of the year saw further files submitted to the Director of Public Prosecutions in respect of alleged offences under both section 60 of the Companies Act 1963 and section 197 of the Companies Act 1990. Having considered the material submitted by the ODCE, the DPP directed that a total of 60 charges be preferred against a number of individuals.

Following the bringing of charges, these matters moved into the realm of the Courts. As a consequence, during the second half of the year the Office’s Anglo related activities were largely in the nature of assisting and supporting the office of the DPP in discharging its disclosure obligations to those persons against whom legal proceedings are pending. This is a major undertaking and, as such, is likely to be a significant and continuing feature of the Office’s work for some time to come."

The 1963 section covers a company's activities in supporting its share price while the 1990 section covers statements made to auditors.

It is alleged that Seán FitzPatrick, former chairman and chief executive of Anglo Irish Bank, Willie McAteer, former finance director, and Pat Whelan, former managing director of lending, were in breach of company law while they were employed at the bank.

The Apple revelations reveal a big black hole in Irish company law compliance.

The Irish Department of Finance said in a 1998 paper:  "An Irish registered non-resident (IRNR) company is one which is incorporated in Ireland under Irish company law but is not resident here for tax purposes because the company is controlled and managed abroad. Under existing tax law, a company is resident in the State for tax purposes if its effective management is located in the State...IRNR companies have posed a threat to Ireland's international image and its reputation as a well-regulated jurisdiction for conducting business. These companies are regularly advertised 'for sale' in international magazines, often alongside companies which are incorporated in tax havens and jurisdictions with relaxed regulatory regimes. Many IRNR companies have little or no connection with the country and some may be used for tax evasion, money laundering and fraud. A number of fraud cases involving IRNR's have been covered recently in the press. On the other hand, IRNR companies are used by several multinationals for legitimate international tax purposes."

In the Finance Act, 1999, under pressure from the EU, all Irish-incorporated companies became resident; however, there are a number of exceptions to the rule, some of them to accommodate the situation of multinational companies (many American) who have established themselves in Ireland. The most important exceptions are:

  • An Irish-incorporated company which is resident in a treaty country (Ireland has Double Tax Treaties with 69 countries of which 64 are in effect) and which is not resident in Ireland will continue to be regarded as non-resident in Ireland;
  • An Irish-incorporated company which is under the ultimate control of a person or persons resident in an EU member state or in a country with which Ireland has a double tax agreement, or which is, or is related to, a company whose principal class of shares is substantially and regularly traded on a stock exchange in an EU country or a treaty country AND which carries on a trade in Ireland or is related to a company which carries on a trade in Ireland will continue to be able to be non-resident under the management and control test. ('Related to' means that either one of the two companies owns at least 50% of the other, or that both are owned at least 50% by a third company; 'Control' is interpreted within Irish rules that attribute the rights of shareholders to related parties and associates.)

The Lowtax portal says: "As can probably be seen, these rules taken together are far from restrictive, and in most cases it was possible for companies either to continue non-residence as they are currently structured, or else to make reasonably straightforward adjustments to fall within the new rules."

Apple's Irish companies have unlimited status and it does not have to file accounts in Ireland.

In an unlimited company there is no upper limit on the personal liability of shareholders for the company’s debts upon the company’s insolvency. William Fry, a law firm, says: "Although one might expect this type of company to be rare, 2% of all Irish companies are unlimited, and Ireland has more than twice as many unlimited companies as it has PLCs."

Grant Thornton, an accountancy firm, says: "an unlimited company is generally not required to file a copy of its annual accounts with the Registrar of Companies provided at least one of its members does not have a limit on its liability."

However, LK Shields, another Dublin law firm, says it is possible to use a structure, using non-EU companies as holding companies, where an unlimited company can avail of the non-filing exemption while also providing the original shareholders with limited liability.

Apple Operations International, the lead Apple holding company in Cork, booked profits of almost $30bn in four years but there can be no external monitoring of compliance.

So an Irish unlimited company can be limited in practice and operate with limited or no  risk of  regulatory compliance.

It's a handy status that not only gives opportunities for corporate tax avoidance but also for income tax avoidance or evasion. 

Meanwhile, sing the mantras: Ireland's tax regime is "very clear, very transparent" - -  Taoiseach Enda Kenny or "We don't depend on tax gimmicks" - -  Tim Cook, Apple CEO.

Check out our subscription service, Finfacts Premium , at a low annual charge of €25 - - if you are a regular user of Finfacts, 50 euro cent a week is hardly a huge ask to support the service.

The Guardian's Simon Bowers visits Cork:

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