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The Irish Government's decision to send a letter to two veteran US senators
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,
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
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.
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
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
Bruton and Murphy in the WSJ article recycled a common fairytale for an
"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.