|José Manuel Barroso, European Commission president, and Enda Kenny, Irish taoiseach, at a session of the World Economic Forum's annual meeting, Davos, Switzerland, Jan 23, 2014.|
Corporate Tax: Enda Kenny, taoiseach, on Thursday met
Sheryl Sandberg, chief
operating officer of Facebook, at the World Economic Forum annual meeting in
Davos, Switzerland, and he said later that he had reassured her that Ireland's
headline corporation tax rate will not change. However, Sandberg isn't concerned about
headline rate which is too high for the social media giant.
"I confirmed to Sheryl Sandberg that Ireland's corporation tax of 12.5% would
not be moving, not be moving up, not be moving down," Kenny told reporters.
"Investors like certainty and clarity in this regard have to say that Ms
Sandberg expressed herself very satisfied with the engagement of Ireland in
terms of regulations and in terms of the model that Ireland has put in place as
being a model that can stand for all other countries. For Facebook, for Sheryl Sandberg - - she has been a very strong proponent of
Ireland, she sees the IDA model of investment in the country as being
spectacular, that is evidenced by their decision to move to a new 120,000sq ft
unit later this year," Kenny added.
Facebook's foreign corporate tax liability in 2012 was at $22m and Ireland
got $2.35m (€1.9mn) while booking almost all its ex-US revenues in Dublin, which
amounted to 48% of total revenues. The $22m in foreign tax compared with $8m in 2011 and $1m in 2010 while the
social network reported foreign losses of ($568m) in 2012, compared with ($124m)
in 2011 and ($19m) in 2010. Facebook's total revenues in 2012 amounted to $5.09bn split between US at
$2.58bn and Rest of World at $2.51bn (49.3% of total) - - so most of the Rest of
the World revenues are diverted to Dublin. US net income was $1.06bn giving a net income ratio of 41%. The average USD/EUR rate in 2012 was 1.236 according to the Internal Revenue
Service. Facebook Ireland's revenues grew from €737m in 2011 to €1.78bn -- giving Ireland
a magic gift of €1bn in additional services exports in the year. The company
posted a pre-tax loss of €626,000.
Based on a normal net income, Facebook's foreign tax rate would be
just above 3% compared with Google's rate of 4% in 2012 and Apple's 3.6% rate in
the year ended September 2013 - - Apple says: "If the company’s effective
tax rates were to increase, particularly in the US or Ireland, or if the
ultimate determination of the company’s taxes owed is for an amount in excess of
amounts previously accrued, the company’s operating results, cash flows, and
financial condition could be adversely affected."
So ignoring Kenny's piece of theatre, Sandberg's
interest is not the headline rate but the “Double Irish Dutch Sandwich” tax
dodge, which is explained
The lobbying action by the tech giants is being done in Paris rather than
Davos and they are of course very serious about keeping their ex-US corporate
tax rate in low single digits.
The Organisation for Economic Co-operation and Development (OECD) has been
tasked by the G-20 group of leading developed and emerging nations to propose
new international corporate tax rules, and it has published submissions from
various groups including the Digital Economy Group (DEG), a lobbying group for
the US tech giants (there is no transparency on members and it says it includes
“We’d better have strong and robust rules which do not give ground” and allow
companies to avoid paying taxes anywhere, Pascal Saint-Amans, director of the
Paris-based organization’s tax policy and administration center, said during
a webcast Thursday, according to Bloomberg News.
Baker McKenzie, a law firm in Palo Alto, in Silicon Valley, has
presented the lobbying arguments on behalf of the DEG to the OECD - - to shield
individual firms from public attention - - secrecy in the digital age, when it's
In the US, lobbyists representing wealthy clients have a useful tool
available in regulators' expectations that they could have the prospect of a big
jump in earnings via a job with the regulated, the prospect of a consultancy fee
or even a job in the lobbying firm.
two tax expert colleagues of Saint-Amans in
the OECD, were given jobs
by Baker McKenzie and one of them was termed "the
most visible thought-leader in her field."
Somebody in Silicon Valley has surely asked: What
would Pascal Saint-Amans' sale price be?
The DEG says: "We believe that enterprises operating long-standing business models, subject to established international tax rules,
should not become subject to altered rules on the basis that they have adopted more efficient means of
There is a spiel on the development of international e-commerce and
number of international firms engaged in it; Dutch-Irish sandwiches are avoided
and proposed EU VAT (value added tax) rules are used to illustrate how difficult
it is to track cross-border activity.
The sales of Google Australia being booked in Dublin wouldn't even be an
Enterprises that employ digital communications models do not organize their
business operations differently as a legal or tax matter. As a legal matter, digital
economy enterprises seek to limit liability through the incorporation of separate legal
entities to house different operating units, and seek to protect their IP through license
and employee confidentiality agreements. Emerging enterprises generally use legal entities
rather than branches when establishing physical presences outside their home jurisdictions.
Mature digital economy enterprises generally establish local taxable affiliates in most
major market jurisdictions.
That being said, enterprises adopting digital communications models frequently
exhibit business process modifications that can have an effect on the enterprises' legal
and tax structure. Communications technology allows virtually any major enterprise to
centralize functions and automate business processes. As a result, major enterprises are
more readily able to centralize sales, service, customer support, finance,
management, legal, and other similar functions in a single geographic location. Centralizing these
functions in a single location improves efficiency by eliminating duplicative personnel,
premises, travel and related costs. Centralizing functions also improves the efficiency of
the functions themselves by streamlining interdepartmental communication and
Enterprises typically do not track the medium through which the
cross-border supply of digital services in B2C transactions takes place. As a result,
under the proposed EU regulations, enterprises typically lack the information required
to determine the consumer location for purposes of the forthcoming VAT rules. Enterprises
that engage in the crossborder supply of digital services must either bear the administrative,
financial, and technological burdens of first developing or acquiring and then
implementing tools to identify the consumer location for purposes of these rules or
treat VAT as a nonrecoverable cost of supplying the services. In either case,
under the proposed EU regulations, the forthcoming VAT rules impose a significant
burden on enterprises that engage in the cross-border supply of digital services in B2C transactions."
For more background on corporate tax avoidance, check Finfacts reports:
G-20 Australian presidency focuses on tax "leaking bucket";
Ireland still in denial?
Huge corporate cash holdings of $2.8tn put recovery at risk; Top five own hoard
of almost $400bn
Davos 2014: Richest 85 people worth as much as 3.5bn poorest; Few poor countries
|Google's Dutch-Irish-Dutch sandwich grew to €8.8bn in 2012 with that amount transferred from Ireland via the Netherlands to an Irish company in Bermuda with a physical presence on the island that amounts to a letter box in the offices of an offshore services company. Here are the Google Netherlands 2012 accounts|
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