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News : Irish Economy Last Updated: Oct 30, 2013 - 7:38 AM

Ireland's tax man for Silicon Valley
By Michael Hennigan, Finfacts founder and editor
Oct 28, 2013 - 4:02 PM

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Image credit Bloomberg; Finfacts, Sept 2013: US company profits per Irish employee at $970,000; Tax paid in Ireland at $25,000 We use the same 2010 data in our article as is used in the image above.

Google Inc., Facebook Inc. and LinkedIn Corp. wound up in Ireland because they could reduce their tax bills. Their success is leading European and US politicians to label the country a tax haven that must change its ways. Bloomberg's Jesse Drucker says Ireland's tax man for Silicon Valley, who is the grand architect of much of that success is "Feargal O’Rourke, the scion of a political dynasty who heads the tax practice at PricewaterhouseCoopers in Ireland. He advises both multinational companies and the government on tax policy and has emerged as his country’s leading defender."

“Under no circumstances is Ireland a tax haven,” O’Rourke said recently according to Drucker, at his corner office on the River Liffey in Dublin, a ritual stop for many tech companies in their Irish quest. “I’m a player in this game and we play by the rules.”

The rules of course are elastic and only a fool would claim that Switzerland doesn't engage in tax haven activities or in respect of corporate tax avoidance that Ireland, the Netheralands and Luxembourg are not involved in facilitating it.

Bloomberg: Man Making Ireland Tax Avoidance Hub Proves Local Hero

Last month, Feargal O'Rourke made the pitch about Ireland not being a tax haven in The Irish Times.

We said then:

All the developed countries are members of the OECD and among them, neither Ireland, Netherlands, Luxembourg, Switzerland, the UK (with responsibility for 10 island tax havens, known as Crown Dependencies and Overseas Territories) and the US (in Delaware it’s easy to set up shell companies with no questions asked and 1209 N. Orange Street, Wilmington, Delaware is the legal address of companies such as Apple, Bank of America, General Electric, Google, among up about 285,000 other corporations), meet their definition of tax haven -- and for good reason.

All view it as a pejorative term and in 2009 when President Obama termed the Netherlands a tax haven, the Dutch government protested and the Treasury Department adjusted documentation to please them."

The Dutch have 23,000 letter box companies to facilitate tax avoidance and evasion and Bono, the anti-poverty campaigner and his rock group U2 uses one of them.

Finfacts: Bono's hypocrisy on Africa, corporate tax avoidance in Ireland

While Bono is a hypocrite, O'Rourke, the son of Mary O'Rourke, former Fianna Fáil government minister and first cousin of the late Brian Lenihan, finance minister in 2008-2011, has no apologies for advising on massive tax avoidance.

“Why should Ireland be the policeman for the US?” he asks according to Bloomberg. “They can change the law” -- he snaps his fingers -- “like that! I could draft a bill for them in an hour.”

So when the European Union is expected to refund Ireland the €64bn cost of bailing banks following reckless misgovernance by Fianna Fáil-led governments, should solidarity be more than a one-way street?

So while corporate tax on the profits of a multinational's sales in Madrid or Athens, may be payable in Dublin or no tax is payable, it's OK for Ireland to expect help from European taxpayers?

We have yet to contribute a net cent to the EU budget in 40 years.

So in addition besides expecting financial support, it's OK for Ireland to facilitate tax avoidance and possibly in some cases evasion.

This issue is not about the headline corporate tax rate of 12.5%.

Google reported in Ireland a net income as a ratio of sales of 0.8% in 2012 compared with Google Inc's net income ratio of 30%.

Google transferred all its 2012 foreign income of $8.1bn through Ireland. It paid $358m or 4.4% to foreign governments including $22m to Ireland.

Finfacts: US company profits per Irish employee at $970,000; Tax paid in Ireland at $25,000

So while Feargal O'Rourke has become rich by advising US companies on minimising their tax payments in Ireland and across the world, Steven Pearlstein of The Washington Post reported on Sunday that when Tim Cook, Apple CEO, gave testimony on Capitol Hill last May on Apple's tax strategies:

A few miles away in Arlington, a 55-year-old economist named Marty Sullivan sat on a folding metal chair at a card table in the garage of his modest brick home and watched the hearing unfold on his laptop computer. Sullivan is one of those unheralded members of the permanent Washington establishment who make things work, at least when the politicians let them. And for two decades, from the same home office, Sullivan has been exposing the tax-dodging schemes of multinational corporations in the columns of Tax Notes, a must-read publication for tax lawyers, accountants and policy wonks.

It was Sullivan who shined an early light on how companies had finagled “transfer prices” — the price one division charges another for parts or services — to shift profits to low-tax jurisdictions.

It was Sullivan who had called out the big drug and tech companies for transferring ownership of their patents and trademarks — the source of much of their profits — to subsidiaries in Ireland and other low-tax jurisdictions."

Aggressive tax avoidance became a common feature of US multinationals from the late 1990s and the Congressional Research Service says [pdf] a so-called "check-the-box" provision had unintended consequences..

We reported in 2004:

Ireland is the world's most profitable country for US corporations, according to analysis by US tax journal Tax Notes. In a study by the journal's Martin Sullivan, it was found that profits made by US companies in Ireland doubled between 1999 and 2002 from $13.4bn to $26.8bn, while profits in most of the rest of Europe fell. In his analysis Sullivan termed Ireland a 'semi-tax haven' for US firms, because firms are involved in real productivity in contrast with locations such as Bermuda.

Between 1999 to 2002, US multinational corporations increased profits in countries with no taxes or low rates by 68% while sharply reducing profits recorded in countries where they engage in substantial business activity, a study published in the journal Tax Notes shows.

According to the New York Times, Commerce Department data, not referred to in the study, suggest that US companies took 17 cents of each dollar of worldwide profits in tax havens in 2002, up from 10 cents in 1999.

Tax Notes shows that for each dollar of profit taken in Luxembourg in 1999, US corporations took $4.56 of profit in 2002. The result for Bermuda was $2.96; for Ireland $2.01; and for Singapore $1.72. These countries are viewed as tax havens or partial tax havens. For UK, each dollar of profit taken in 1999 was equal to 67 cents in 2002; for Germany, it was 46 cents."

In Ireland, Finfacts warned that the massive growth in avoidance would trigger a backlash and in 2009, IDA Ireland, the Irish inward investment agency, hired a lobbying firm in Washington DC when the new Obama administration proposed anti-tax avoidance measures.

Gridlock in Washington and a veto on tax harmonisation in the European Union was an answer to official Ireland's prayers.

In the past year, the tide has decisively turned with the support of G-20 countries for an Organisation of Economic Cooperation and Development (OECD) project to propose new international business tax rules, for enactment by 2015.

Contrary to conventional wisdom, Finfacts did not believe that the free lunch had been invented during the property bubble and we predicted that the huge growth in tax avoidance would eventually rebound on Ireland's facilitation of it.

The Irish Government and people like Feargal O'Rourke are shocked by the momentum for change that accelerated in November 2012, when Margaret Hodge MP, chaired a Public Accounts Committee meeting of the House of Commons where European executives from Google, Amazon and Starbucks, struggled to defend their payments of low taxes or none on their operations in the big UK consumer market.

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