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The Irish Government's decision to send a letter to two veteran US senators disputing a report by the US Senate Permanent Subcommittee on Investigations, on Apple's use of three Irish companies for tax avoidance, was a foolish one and on Friday there was a swift smackdown from Washington DC.
Irish ministers were not the only ones who believed that the May 20 report of the Senate panel could be countered by arguments based on semantics.
The Irish Times said in an editorial on May 22 - - a day after oral evidence on Capitol Hill, from Tim Cook, Apple's CEO:
"The charges made now need to be countered, speedily and effectively, by both political and diplomatic means. First, by Government setting out a clear narrative on corporate tax that can be easily understood - - at home and abroad - - and that rebuts some of the erroneous claims made. Second, through a major diplomatic initiative in the US to ensure there is a better understanding of the Irish position on corporate taxation."
The era of the strong Irish presence on Capitol Hill with Thomas P. "Tip" O'Neill as speaker of Congress together with leading senators, Edward Kennedy and Daniel Patrick Moynihan, who had formed the 'Friends of Ireland' group in Congress in 1981, is past.
On Wednesday, Michael Collins, the Irish ambassador,wrote [pdf] to Senator Carl Levin, Democrat of Michigan and chairman of the subcommittee, and Senator John McCain, Republican of Arizona, 2008 presidential candidate and ranking minority member of the subcommittee, claiming Ireland was not a tax haven because it did not meet four key criteria to be a tax haven as identified by the OECD - - the Paris-based Organisation for Economic Cooperation and Development, a think-tank for 34 mainly developed countries.
The letter also implied that Ireland had no responsibility for billions in transactions that were routed through three Irish companies because the companies were considered non-resident for tax purposes.
None of the 34 member countries have been termed tax havens as they regard the term an abusive one better suited for islands in sunny climes where arching palms sway over sandy beaches.
However, Switzerland, the Netherlands, Ireland and Luxembourg, do engage in tax haven activities and the protestations of Irish ministers and Joanne Richardson, chief executive of the American Chamber of Commerce in Ireland, evoke the Queen in Shakespeare's Hamlet: "The lady doth protest too much, methinks."
Richardson said in an op-ed in The Irish Times this week that Ireland is not and has never been a tax haven and she found it regrettable, and unfair, that Ireland was name-checked so heavily in recent US Senate hearings. She added a delusional claim: "We can stand firm in the knowledge that our tax regime is internationally recognised as fair and just."
The Senate subcommittee had found that Apple used subsidiaries in Ireland to funnel about $74bn in worldwide income away from the US. The three Irish subsidiaries -- Apple Sales International, Apple Operations Europe and Apple Operations International -- were incorporated in Ireland but not tax resident anywhere.
Apple was able to pay an effective tax rate of 2% or less since 2003, compared with Ireland’s corporate tax rate of 12.5%.
On Friday, Senator Carl Levin and Senator John McCain, responded to the Irish letter by saying:
"Most reasonable people would agree that negotiating special tax arrangements that allow companies to pay little or no income tax meets a common-sense definition of a tax haven."
It was foolish for the Irish Government to send the letter as it was likely to be rebuffed by Levin in particular, a 34-year veteran of the Senate with a record of fighting tax and corporate abuses.
The playing with words by Apple and Irish ministers: [tax haven, transparent, gimmicks] in the face of pretty stunning evidence, has been zapped by a simple term: "common sense definition."
Senators Levin and McCain are both pushing for US tax reform and that is the purpose of their subcommittee's investigations.
The senators say that the average US corporation pays an effective tax rate of 15%, less than half the statutory rate of 35%. "A recent study found that 30 of the largest US multinationals, with more than $160bn in profits, paid nothing in federal income taxes over a recent three year period."
With revelations of amounts involving huge sums of money, with most of it untaxed, the distinction between Irish tax-resident and Irish non-tax resident companies, would unsurprisingly be seen beyond vested interests and the delusional, as another example of the Byzantine schemes that are used to shelter from taxes.
It would hardly be a shock to know that most Irish non-tax resident companies are used for tax avoidance.
Besides, Ireland is marketed by Dublin law firms as a location for headquarters of companies because of what are essentially tax haven advantages.
These companies are not required to have normal business operations in Ireland e.g. production, sales, marketing etc.
"There are numerous advantages for multi-national companies with large Intellectual Property (“IP”) portfolios who locate and manage these portfolios in Ireland. The effective corporation tax rate can be reduced to as low as 2.5% for Irish companies whose trade involves the exploitation of intellectual property. The Irish IP regime is broad and applies to all types of IP. A generous scheme of capital allowances as well as a tax credit for money invested in research and development in Ireland offer significant incentives to companies who locate their activities in Ireland.
A well-known global company recently moved the ownership and exploitation of an IP portfolio worth approximately $7bn to Ireland."
It is believed that the global company referred to is Accenture, the US management consultancy, which moved its headquarters from Bermuda to Ireland in 2009
Also in 2009, Cooper Industries with a payroll of 25,000 moved its headquarters from Bermuda to Maynooth, Ireland, to give the location more legitimacy in the eyes of US politicians. In 2012 it was acquired by Eaton, another US electric systems company, with a payroll of 75,000 and the bigger Eaton decided to move the headquarters of the expanded group to Ireland and save an annual $160m on its tax bill.
John Bruton, former taoiseach (Irish prime minister) who is now a lobbyist for a financial services organisation and Kevin Murphy, chairman of the Irish Funds Industry Association and a partner at Arthur Cox, argued in an op-ed on The Wall Street Journal last week that:
"The Organisation for Economic Cooperation and Development doesn't regard Ireland as a tax haven. The OECD identifies four key indicators of a tax haven and none of them applies to Ireland. The first indicator is having no taxes or only nominal taxes; the second is a lack of transparency; the third is an unwillingness to exchange information with tax administrators of OECD countries; and the fourth is an absence of a substantial activity requirement. None of these criteria describes Ireland."
In the real world, as described above, a big company can just open its headquarters in Ireland with a few administrators and avail of low taxes. The Arthur Cox firm says intellectual capital can be transferred to Ireland to avail of a 2% tax -- in practical terms, this would involve a simple written transaction.
Bruton and Murphy in the WSJ article recycled a common fairytale for an American audience:
"Foreign direct investment into Ireland is at all-time highs, and U.S. multinationals remain very important to Ireland. However, less well known is that Irish companies employ as many people in the U.S. as U.S. firms do in Ireland—around 100,000 workers.”
Inward FDI peaked a decade ago and full-time jobs in the foreign owned sector are at a 13-year low.
As for the claim on outward investment, on paper it exceeds inward investment and is good material for spinners of fairytales.
