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News : Irish Economy Last Updated: Feb 11, 2014 - 8:00 AM


Corporate Tax 2014: Yahoo! joins “Double Irish Dutch Sandwich” club; IDA Ireland wants more members
By Michael Hennigan, Finfacts founder and editor
Feb 9, 2014 - 8:09 AM

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Enda Kenny, taoiseach/ prime minister, at the OECD headquarters, Paris, Feb 07, 2014.

Corporate Tax 2014: Yahoo! is to shift its European headquarters from Switzerland to Ireland to take advantage of the “Double Irish Dutch Sandwich” tax dodge that has been used by companies such as Google, Microsoft and Facebook to reduce their overseas tax bills to low single digits. Meanwhile, IDA Ireland, the inward investment agency, is reported to have said that it is working on luring other companies from Switzerland and elsewhere to Ireland, to also join the tax dodge sandwich club.

On Friday in Paris, the Organisation for Economic Co-operation and Development (OECD), which represents 34 countries that include all developed nations, hosted Enda Kenny, taoiseach/ prime minister, and ministerial colleagues at its headquarters. Among issues discussed was the OECD's project on developing new international tax rules, which was agreed at the G-20 summit in St Petersburg, Russia, last September.

"We have been very clear about this all along, our tax rate is 12.5%, 11.9% effective, it is a matter of national competence," Kenny told reporters and he added that the Irish Government supported the closing of loopholes.

Whether that's the truth or not, the claim that the Irish effective corporate rate for foreign multinationals (actual tax provided in an accounting period as a ratio of profits) is 11.9%, is bogus -- that rate is based on a pottery manufacturer with 60 employees that neither exports or imports.

We reported last August that the effective tax rate for American firms in Ireland in 2010 was 2.5%.

While US high tech firms, in particular in services, are the biggest gainers from the “Double Irish Dutch Sandwich” - - explained by the IMF - - Pfizer, the pharmaceutical firm, is Ireland's biggest merchandise exporter, and in the 3 years 2010-2012, it reported a loss in the US (the market accounted for 39% of revenues in 2012) while using the low tax jurisdictions of Puerto Rico, Ireland and Singapore to lower its tax bills.

Bloomberg News reported in 2012 that in 2009, according to the correspondence, Pfizer cut 9.4% from its tax rate by designating profit as overseas. And in 2011 the company reduced the rate 3.3%.

Pfizer Ireland is owned by a Dutch partnership. 

On Yahoo!'s move, Reuters reports that currently, Switzerland offers tax rates to companies which make their profits outside Switzerland that are less than half the rates imposed on companies that operate locally but EU rules require countries not to discriminate between domestic and foreign firms in taxation and Brussels has told Switzerland that if it wants to enjoy unfettered access to the bloc's market, it needs to scrap this practice.

The news agency said Switzerland is discussing harmonizing corporate tax rates at a lower level than its current domestic rate of around 21% but Marius Brulhart, professor of economics at the University of Lausanne, said the country may not be able to go as low as Ireland's 12.5% rate.

Barry O'Leary, chief executive of IDA Ireland, told Reuters that he was talking to "a handful" of other companies about possible relocations from Switzerland to Ireland.

"If two or three of them decided to relocate that starts a trend," he said.

Reuters says that in 2009-2012, Google had a non-US average corporate tax rate of 2.9% while eBay Inc.'s bill over the period was 3.1%. In the same period, Yahoo!'s overseas rate was 27%.

Yahoo! is also moving its data storage from France to Ireland and European revenues will be diverted to Ireland providing more fantasy output and exports.

About 150 tech and content employees in France will lose their jobs.

"We have to act with regard to these big well-known groups which lodge themselves in low-tax countries," François Hollande, French president, said on Thursday.

The president will be in the United States on a state visit next week and he will visit San Francisco where he will meet Eric Schmidt, chairman of Google, and Sheryl Sandberg, chief operating officer of Facebook, as well as representatives from Twitter and Mozilla.

The French tax authorities are reported to have recently issued Google France with a demand for €1bn in respect of unpaid taxes.

Grace Perez-Navarro , deputy director of the OECD centre for tax policy and administration, said on Friday that the OECD was trying to close down loopholes through its global tax work and attempts to increase transparency.

She said the Double Irish was one of the loopholes and the OECD was working with all countries to try to eliminate them.

"As you know, through the Double Irish, Ireland doesn't get any corporate revenue from that so it's not in Ireland's interests to have that,'' she said. "It's in Ireland's interest to attract businesses that create jobs and businesses that pay their 12.5% corporate tax.''

Officially, Ireland still expects Europe to refund the €64bn cost of the bailout of Irish banks.

Holding out one hand expecting solidarity while giving the reverse peace sign with the other, may not be wise.

Selection of Finfacts tax reports 2013/14:

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

Corporate Tax: Kenny reassures Facebook but Ireland's rate is too high

Foreign government requests Bermuda to investigate Microsoft's Irish-linked subsidiaries

G-20 Australian presidency focuses on tax "leaking bucket"; Ireland still in denial?

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

This is Enda Kenny's pottery maker with an effective tax rate of 11.9% in 2012 from 'Paying Taxes 2013' [pdf]

Believe the official guff that the Irish Revenue would treat a domestic small firm the same as the Apples and Googles of the world, you likely would not be alone, as there is always an audience for fairytales.

Assumptions about the business

The business:

  • Is a limited liability, taxable company. If there is more than one type of limited liability company in the economy, the limited liability form most common among domestic firms is chosen. The most common form is reported by incorporation lawyers or the statistical office;
  • Started operations on 1 January 2010. At that time the company purchased all the assets shown in its balance sheet and hired all its workers;
  • Operates in the economy’s largest business city;
  • Is 100% domestically owned and has five owners, all of whom are natural persons;
  • At the end of 2010, has a startup capital of 102 times income per capita;
  • Performs general industrial or commercial activities. Specifically, it produces ceramic flowerpots and sells them at retail. It does not participate in foreign trade (no import or export) and does not handle products subject to a special tax regime, for example, liquor or tobacco;
  • At the beginning of 2011, owns two plots of land, one building, machinery, office equipment, computers and one truck and leases one truck;
  •  Does not qualify for investment incentives or any benefits apart from those related to the age or size of the company;
  • Has 60 employees—four managers, eight assistants and 48 workers. All are nationals, and one manager is also an owner. The company pays for additional medical insurance for employees (not mandated by any law) as an additional benefit. In addition, in some economies reimbursable business travel and client entertainment expenses are considered fringe benefits. When applicable, it is assumed that the company pays the fringe benefit tax on this expense or that the benefit becomes taxable income for the employee. The case study assumes no additional salary additions for meals, transportation, education or others. Therefore, even when such benefits are frequent, they are not added to or removed from the taxable gross salaries to arrive at the labour tax or contribution calculation;
  • Has a turnover of 1,050 times income per capita;
  • Makes a loss in the first year of operation;
  • Has a gross margin (pretax) of 20% (that is, sales are 120% of the cost of goods sold);
  • Distributes 50% of its net profits as dividends to the owners at the end of the second year;
  • Sells one of its plots of land at a profit at the beginning of the second year;
  • Has annual fuel costs for its trucks equal to twice income per capita;
  • Is subject to a series of detailed assumptions on expenses and transactions to further standardise the case. All financial statement variables are proportional to 2005 income per capita. For example, the owner who is also a manager spends 10% of income per capita on travelling for the company (20% of this owner’s expenses are purely private, 20% are for entertaining customers and 60% for business travel).

Assumptions about the taxes and contributions

  • All the taxes and contributions recorded are those paid in the second year of operation (calendar year 2011). A tax or contribution is considered distinct if it has a different name or is collected by a different agency. Taxes and contributions with the same name and agency, but charged at different rates depending on the business, are counted as the same tax or contribution;
  • The number of times the company pays taxes and contributions in a year is the number of different taxes or contributions multiplied by the frequency of payment (or withholding) for each tax. The frequency of payment includes advance payments (or withholding) as well as regular payments (or withholding

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