|PwC launches ‘Why Ireland?’ guide simultaneously in New York, Boston and San José, Silicon Valley, March 2012|
Corporate Tax 2014: Feargal O'Rourke, head of tax at
PricewaterhouseCoopers (PwC) in Ireland, in
a radio interview this morning
dismissed US Bureau of Economic Analysis (BEA) data collected from US companies in
respect of Irish affiliates as "meaningless." He said there was a
“hole the size of the grand canyon” in the data but that claim was not supported
with any evidence and what he appeared to want was more Irish tax fairytales.
O'Rourke was appearing with Jim Stewart of
Trinity College who had calculated that the effective rate of tax for
American companies in Ireland in 2011 was 2.2%.
Finfacts last year
estimated the effective rate at 2.5% in 2010.
O'Rourke said: “It (the research data) is
counting companies that have no operations in Ireland whatsoever. They were born
here but have no assets, no income, no activity whatsoever. These companies do
not operate in Ireland. No wonder you’d get 2.2%” -- they're Irish offshore
companies that are used as part of tax avoidance schemes and if not, what would
be their purpose? Arms or illicit drug deals?
is credited by Jesse Drucker of Bloomberg News as the leading Irish
tax expert behind such schemes as the "Double Irish Dutch Sandwich" scheme - -
the non-tax resident mailbox companies on sunny islands are the end route for
shaving billions off tax bills.
See the infographic
here from the Bloomberg piece, with BEA data for Ireland in respect of the
period 1990-2010, where earnings and employment are tracked.
Look how the earnings diverge from the mid -1990s as companies took
advantage of the
box’ loophole [pdf], which had unintended consequences. However, with
companies able to effectively buy votes on Capitol Hill, once the loophole was
available, efforts to close it, including by the Obama administration, have
Between 1999-2002, reported profits in low tax countries such as Ireland
doubled and from then agressive tax avoidance has been the norm while the spolismen in Washington DC are bought off.
It would be a sham to ignore these companies.
IMF explains “Double Irish Dutch Sandwich” tax avoidance
We assume that US companies do
not supply false data to the BEA and when income and tax is allocated to Irish
affiliates in their submissions, that is what they also report to the Internal
Revenue Service (IRS). Wherever profits come from, these are Irish companies
that receive them.
O'Rourke said that branch operations are
not included in BEA data but that is doubtful as legally Pfizer Ireland, the
unit of the drugs giant, is a branch of a Dutch partnership but why would
significant data on an Irish affiliate that is 100% owned not be allocated to
Ireland. Besides, it's geographical data that the IRS could request.
Microsoft told the US Senate Permanent
Subcommittee on Investigations in 2012 that its business structure is designed
to take advantage of low tax jurisdictions in Ireland, Puerto Rico and
Apple's global foreign tax
rate was 2% in 2012 and 3.6% in 2013; Google's provision of €17m in corporate
tax in 2012 to Ireland on the foreign net income of $8.1bn it booked in Ireland,
gave an effective tax rate of 0.21%. Google's global foreign-paid tax rate in
2012 was 4.4%.
What is curious about O'Rourke's argument is that
he implies that Ireland should not have any responsibility for its mailbox
holding companies in places like Bermuda and Cayman Islands.
Recently, a foreign government has requested
Bermuda to investigate three of Microsoft's subsidiaries in the island 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
The US Senate Permanent
Subcommittee on Investigations said in 2012 that Microsoft's 1,914 employees in
Ireland, Singapore and Puerto Rico from the software giant’s total head count of
90,000, were responsible for 55% of 2011 profit before tax through shifting
customer revenues from other economies.
Ireland gains little from
what the US Senate panel called Microsoft's
In 2011/2012, while
Microsoft shifted 24% of global revenues to Dublin, Microsoft Inc.'s net income
ratio was 30% and 7.5% in Ireland. Microsoft's global profit before tax in
2012 was $22bn; in Ireland profit was reported at $1.3bn.
Microsoft Operations Ireland reported a 37% rise in revenues in the year
ended June 30, 2012 to €13.7bn without
any significant change in its payroll of less than 700.
Google Ireland reported a 25% rise in 2012
revenues to €15.5bn (41% of Google Inc.'s global revenues ex Motorola) while
increasing its workforce in Dublin by 100 to 2,200.
Google Ireland reported a net income as a
ratio of sales of 0.8% compared with Google Inc's net income ratio of 30%. Taxes paid or provided for in Ireland amounted to €17m.
The tax paid by Google and Microsoft, on net income
after multi-billion royalty charges results in effective rates of 11% (€17m on
€154m) and 13.2% (€132m on €1bn) respectively, appearing to confirm the official
line that Ireland's effective rate of corporate tax (actual tax paid as a ratio
of net income) is close to the headline rate of 12.5%. However, the net income
in Ireland is minimised through huge intercompany charges.
While profits per employee at US-owned companies in
Ireland were at $970,000 in 2010, revenue per Irish employee in 2010 was
According to The Wall Street Journal, a sample of 468 firms in the S&P 500
stockmarket index in 2007, generated an average of $378,000 in revenue for every
employee on their payrolls. In 2011, that figure rose to $420,000.
Foreign government requests Bermuda to investigate Microsoft's Irish-linked
Investment income from so-called 'trapped cash'
is included in Irish earnings in BEA data.
The "Grand Canyon" metaphor is
Data supplied to the Irish Central Statistics
office would be from the local affiliate and in this digital age, head office
can easily arrange the figures that suit.
Whatever goes through Irish companies wherever
they are based is an Irish responsibility.
Ireland facilitates the holding companies in the
island tax havens with unlimited status. So it cannot be ascertained what other
flows beyond direct ones from Ireland are routed through them - - but again, the
US companies report what is claimed in respect of Ireland.
The non tax-resident Irish companies are made
available for tax avoidance as existing multinationals in 1999
had sought an exemption from a reform in company law that was introduced at
the request of the European Commission.
Besides, Apple, Google and Microsoft, Facebook
diverts almost half its global revenues to Ireland before it moves to the Cayman
Islands- - however this results in fake exports and output in Ireland. In 2012,
absent these fake transactions GDP (gross domestic product) would have been
reported to have contracted
Irish Medium-Term Economic Strategy 2014-2020: Exports to plunge
by €50bn - Part 1
Arthur Cox, Ireland's biggest corporate law firm, said in
a January 2011 tax briefing, 'Uses
of Ireland for German Companies' [pdf]:
It is believed that the global company referred to is Accenture,
the US management consultancy, which moved its headquarters from Bermuda
to Ireland in 2009
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."
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.
Officially, Ireland isn't a tax haven and neither
is any of the 34 member countries of the Organisation for Economic Co-operation
and Development (OECD), which includes all developed nations.
A tax haven has to have arching palms shading sandy beaches.
While big US companies overseas are synonymous with
tax avoidance, at home, companies also win as cities and states compete with
handouts to attract jobs.
Meanwhile, in 2012, inflation-adjusted US household
income was lower than it was in 1989:
American Plutonomy: Richest 5% account for almost 40% of consumer spending
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Selection of Finfacts tax reports 2013/14:
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US company profits per Irish
employee at $970,000; Tax paid in Ireland at $25,000
Corporate Tax 2014: Yahoo! joins “Double Irish Dutch Sandwich” club; IDA Ireland
wants more members
Corporate Tax: Kenny reassures Facebook but
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