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| Enda Kenny, taoiseach/ prime minister, meets Tim Cook, Apple's CEO, at its Cork campus, January 31, 2014 |
A foreign government has requested Bermuda to investigate three of
Microsoft's subsidiaries in theisland nation that are in effect Irish
offshore shell
companies linked to the software giant's companies in Ireland, and are used for
corporate tax avoidance and maybe evasion.
The OffshoreAlert newsletter services picked up this information from a
handwritten record that had been inadvertently made public by the Bermuda Supreme
Court two weeks ago. The information
was published this week in the United States by The
Huffington Post.
The government of Bermuda was responding to a
Tax Information Exchange Agreement (TIEA) request (the foreign government
wasn't identified), which is part of an international
monitoring system, established by the Organisation for Economic Cooperation and
Development (OECD), which Bermuda assented to in 2005.
David Marchant of OffshoreAlert reported on January 16 that "filings
at Bermuda Supreme Court...suggest that US-based computer giant Microsoft
Corporation is being investigated for suspected tax offenses involving three
offshore subsidiaries, Flat Island Company, Round Island One, and RI Holdings."
“Each application was clearly entered into the cause book, and therefore the
public domain, by mistake, as evidenced by the fact that as soon as
OffshoreAlert publicized their existence, they were quickly removed,” David
Marchant told the Bermuda Sun newspaper.
He added: “I monitor Bermuda court filings on a weekly basis and I’ve done so
for years. I cannot recall ever seeing TIEA-related applications before. I
believe the standard is to file such things under seal.”
Flat Island Company and Round Island One are Irish companies and RI Holdings
appears to also be another non-tax resident Irish company.
In 2005,
The Wall Street Journal brought attention to
Microsoft's efforts to route for example profits on sales in Germany to Dublin
on which the software firm paid Ireland at less than the low headline tax rate
of 12.5%. The Journal said a
subsidiary, Round Island One Ltd., operated from the offices of a Dublin law
firm and was one of the country's biggest companies, with gross profits of
nearly $9bn in 2004 but it had no direct staff. Now Google and Facebook are
following on Microsoft's trail.
The Journal said much of
Round Island's income was licensing fees came from copyrighted software code
that originated in the US. Some of the rights to these lucrative assets ended up
in Ireland via complex accounting rules on intellectual property
Through a key holding,
dubbed Flat Island Co., Round Island licensed rights to Microsoft software
throughout Europe, the Middle East and Africa. Thus, Microsoft routed the
license sales through Ireland and Round Island
paid a total of just under $17m in taxes to about 20 other governments that
represented more than 300m people and $300m in taxes to a country of just over
4m.
WSJ report [pdf; free]
Following the WSJ report, Microsoft had changed the Irish companies,
headquartered in Bermuda, to 'unlimited status' in Dublin, thereby shielding
information from the public - - the Irish Companies Registration Office does
not even have the names on its publicly available companies database.
The HP says that at the centre of Microsoft's web
of offshore subsidiaries are two of the company's top in-house lawyers, Keith
Dolliver and Benjamin Orndorff, who work at headquarters in Redmond, Washington
State. Dolliver and Orndorff serve as the chairman and vice chairman,
respectively, of four Bermuda-based shell companies, including the three tied up
in the inquiry. Dolliver and Orndorff also serve on the boards of more than a
half-dozen Dublin-based companies with names like Microsoft Ireland Capital,
Microsoft Research Ireland and Microsoft Ireland Operations. They also both
served on the board of Skype Ireland Technologies Holdings, a Dublin-based
subsidiary created following the Microsoft-Skype deal.
In 2012, a report by the US Senate Permanent Committe on Investigations,
detailed how Round Island One was also used for tax avoidance in the Americas.
Microsoft Operations Puerto Rico (MOPR) pays for the right to sell
Microsoft products in the Americas. MOPR makes digital and physical copies of
Microsoft software and handles sales throughout the United States and the rest
of the Americas.
MOPR is owned by a Bermuda-based entity, MACS Holdings, which in turn is
owned by Round Island One, a fully owned Microsoft subsidiary that is based
in Bermuda but is an Irish company but does not pay taxes in either Bermuda or
Ireland.
The subcommittee report said:
Microsoft chose to establish MOPR with funds from a wholly-owned Irish
affiliate, Round Island One. This decision ultimately gave ownership of MOPR to
Microsoft’s Irish group. To effectuate this plan, the US group established two
entities. Microsoft created MOPR as well as a Bermuda entity called MACS
Holdings (MACS) to serve as the sole owner of MOPR. After the entities were
established, ownership of MACS was transferred from the US group to the Irish
incorporated entity, Round Island One, in a non-taxable transaction under
section 368 of the Internal Revenue Code. MOPR was seeded with $1.6bn in
equity funding, supplied by its Irish parent, which paid for the construction of
the Puerto Rican manufacturing facility and MOPR’s obligation under its research
and development cost share agreement. MOPR ran deficits during its first two
years of operations, after which time it generated enough income to pay its
obligations."
Senate panel report:EXHIBITS FOR 9/20/12 HEARING »
The Huffington Post says that in the UK,
Microsoft
came under fire in December 2012, when it was revealed that the company paid
no British tax on £1.7bn from British software sales.
Bermuda is officially designated a British Overseas Territory, but it operates
with significant autonomy and it has no corporate profits tax.
Round Island One of Ireland and Bermuda owns the two main Microsoft
operations companies in Ireland: Microsoft Ireland Operations Limited (MIOL) and
Microsoft Ireland Research (MIR) - - and the software giant used the “Double
Irish Dutch Sandwich” tax avoidance scheme before Google and Facebook took
advantage of it.
Apple
Ireland's non-tax resident companies, which are
technically 'controlled' elsewhere but are in practice are mailbox shell
entities, are available for multinationals to facilitate corporate tax
avoidance and evasion.
In May 2013, the US Senate Permanent Committe on
Investigations
revealed that Apple viewed such Irish legal entities as 'stateless' -- in
effect not subject to any tax jurisdiction.
Late last year, the Irish Government made a
slight amendment to the existing facility by requiring companies to state where
such shell operations are controlled from.
Tim Cook, Apple CEO,
was at the giant's Cork campus on Friday where over 4,000 are employed in an
administration services facility that has a majority of European staff because
of language requirements.
Enda Kenny, taoiseach/ prime minister,
met Cook there and later Kenny said he re-assured Cook that Ireland operated “a
very transparent, statutory based rate of 12.5%” and that would continue.
Apple gets about 60% of its revenues outside the
US and in its 2012 fiscal year, its tax rate was 1.9% and 3.6% in 2013 -- Cook is
not interested in paying at a 12.5% rate.
“My point is that our rate is 12.5% and we don’t
do specific deals with companies and clearly the company themselves are always
in contact with the Revenue Commissioners about any changes in structures that
they may wish to discuss with the Revenue Commissioners.”
He suggests that the Irish companies in such
tax havens in Bermuda are not Ireland's responsibility!
Recent Finfacts tax reports:
Corporate Tax: Kenny reassures Facebook but
Ireland's rate is too high
G-20 Australian presidency focuses on tax
"leaking bucket"; Ireland still in denial?
US company profits per Irish
employee at $970,000; Tax paid in Ireland at $25,000
Corporate tax reform and the
biggest tech tax havens
Ireland's new International
Tax Charter: More political kabuki
Ireland's tax man for Silicon
Valley
Corporate Tax 2014: UK's revenues plunge; France considers reform
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