|Enda Kenny, taoiseach/ prime minister, meets Tim Cook, Apple's CEO, at its Cork, Ireland campus, January 31, 2014|
Having spent the past eighteen months claiming
that Ireland does not facilitate international corporate tax avoidance despite
overwhelming evidence to the contrary, the Irish Government has done a U-turn
and has signalled that it is ready to prepare for the reality of reform.
On Tuesday the Department of Finance published
a consultation document [pdf] on the OECD
(Organisation for Economic Co-operation and Development) Base Erosion and Profit
Shifting (BEPS) project and it announced that Michael Noonan, finance minister, "now wishes to consider options
for Ireland’s tax system to respond to a changing international tax environment.
Interested parties are now invited to submit their views on how Ireland’s
domestic tax system might best respond to international tax changes.
The consultation will run for 8 weeks from 27th May 2014 until 22nd July 2014."
The Department also said in respect of the
BEPS project that "Ireland is
actively engaged in this process."
Up to this week, this meant "actively engaged" in
trying to undermine it with the support of business lobby groups and the
professional services vested interests.
Last month Finfacts argued in a submission to the
OECD that Ireland has the potential to gain from corporate tax reform including
the ending of massive distortions of the national accounts --
for example almost half of Ireland's reported services exports are effectively fake
as they result from tax avoidance.
OECD BEPS Project: Ireland should embrace corporate tax reform
The Irish Times
reports today that Feargal O’Rourke, chairman
of the tax policy committee of the American Chamber of Commerce Ireland, and
head of tax with PwC Ireland, a unit of the Big 4 accounting firm, has said that
the “realpolitik” of the global debate on corporation tax meant Ireland’s rules
needed to change.
For example a change to the rule on tax residency would end a process whereby
multinationals based in Ireland reduce their tax bills by making intellectual
property payments to Irish subsidiaries that are tax resident offshore.
"However, it is likely there would be no corporation tax windfall for the Irish
exchequer as the companies would probably locate their IP elsewhere."
Finfacts 2013: Ireland's tax man for Silicon Valley
On Tuesday the Oireachtas (Parliament) Joint sub-Committee on
Global Taxation met in Leinster House and heard from
Brian Keegan, director of taxation, Chartered Accountants Ireland and Sorley
McCaughey, head of policy and advocacy, Christian Aid Ireland.
Testimony has not yet been published but
according to The Irish Examiner, Brian Keegan warned that poor transfer
pricing and profit shifting proposals could result in Ireland’s €4bn annual tax
take from foreign-owned multinationals falling to €3bn.
He added that any negative international focus on Ireland regarding
international tax policies has been “unfair and
unfounded” and harmful tax practices are “simply not a feature of the Irish tax
He also said that base erosion and profit sharing could make an already
difficult international tax environment even more complicated.
Christian Aid’s Sorley McCaughey said Ireland has a reputational problem and is
already considered a tax conduit country.
His organisation has called for a country-by-country reporting requirement for
companies operating in Ireland.
Brian Keegan spoke the official Newspeak that is now set for revision, where "a
reality distortion field" exists or in Irish vernacular - - a fairytale.
a reality distortion field… In his presence, reality is malleable. He can
convince anyone of practically anything,”
Dr Guy "Bud" Tribble, a member of the Macintosh Software team said about
Steve Jobs, Apple co-founder in 1981. Tribble is still with Apple, having
rejoined in 1992.
The Irish defenders of the status quo arguing
black is white eventually ran out of road and the Government, floundering after
a pasting in the local and European Parliament elections' is likely to be more
open to a Reality Check now than continue to founder in a Star Trek reality
In May 2013 the US Senate’s
Permanent Subcommittee on Investigations revealed how Apple was using Irish
offshore companies that it considered as 'stateless' -- not obliged to report to
any tax authority in the world -- to route much of its overseas income through
In response the Irish Government and its cheerleaders claimed:
The Irish tax system is transparent;
Ireland's effective corporation tax rate was close to the headline 12.5%
rate not the low digit rate for foreign companies availing of the 'Double
Irish Dutch Sandwich' dodge via Irish offshore accounts.
Ireland could not be responsible for Irish offshore companies because they
were "controlled and managed" outside Ireland.
As for Apple, to the world, most of its offshore Irish
companies use the Cork, Ireland address and appear to be part of its real world
operations there - “AOI is active in just two countries, Ireland and
the United States” the May 2013 Senate report says.
Companies like Apple don’t like being publicly associated with small tax
havens. That’s why Accenture, the US consultancy firm, moved its hq from Bermuda to Ireland.
The Irish Apple company in the British Virgin Islands tax haven is
Baldwin (a breed of apple) Holdings Unlimited.
As for transparency, the 'unlimited' status provision in Irish company law
ensures that the accounts of all Apple's Irish units are kept secret.
Ireland closed the
'stateless' loophole but it didn't impact the Irish companies in West Atlantic
tax havens that are part of the 'Double
Irish Dutch Sandwich'
In 2011/2012, Apple's foreign tax rate was 1.9%, Microsoft's was 4% in its 3
regional sales centres: Ireland, Puerto Rico and Singapore, and Google's rate
was 5.3% in 2012, rising to 8.6% in 2013 (page
- - this rate is about one-third of international headline rates. Google's total
(US and overseas) effective rate was 15.7%, down from 19.4% in 2012.
1. In the Finance Act, 1999,
under pressure from the EU, all Irish-incorporated companies were to become
resident for tax purposes; however, multinational companies were given an
exemption and these
companies are mainly used for tax avoidance.
2. In 2011/2012, Microsoft
booked 24% of its global revenues in Ireland; in 2012 Google booked over 40% and
Facebook booked 48% of global revenues in Ireland -- almost all its ex-US
A total of about €45bn
of virtual exportsor
48% of Ireland services exports in 2013 also boosts Ireland's output and without
the benefit of the net exports, Ireland would have reported a GDP contraction in
2012 rather than a small positive. Productivity data is also impacted - - these
exports are effectively fake but they are part of the national accounts.
In February 2013,Michael
Noonan, finance minister, at a
Bloomberg event in London, attributed the jump in services exports to “the
significant price and cost adjustments that have taken place in recent years.” It
was not true!
In April 2013 in a
speech in Amsterdam, Mario
Draghi, ECB president,
said on the reduction in unit labour costs: "Ireland has seen an 18 percentage
point improvement relative to the euro area average." Again
it reflected a distortion.
In July 2013, Microsoft was
declared Ireland's top exporter after a 37% jump in virtual exports value in its
2011/2012 fiscal year. Google was the runner up in the Irish Exporters'
Association rankings and Dell was in fourth place for virtually "exporting" from
Ireland, €10bn worth of PCs produced in Poland.
3. Mailbox Irish holding
companies in West Atlantic island tax havens, avail of secrecy courtesy of
unlimited status provided by Irish company law.
4. It is US companies who
identify Ireland as the location of profits used in BEA data - - for example
Google and Facebook says in their Securities and Exchange Commission filings:
"Although we file US federal, US state, and foreign tax returns, our two
major tax jurisdictions are the US and Ireland."
Netherlands Holdings BV is owned by Google Ireland Holdings, Bermuda.The
Dutch mailbox company, receives funds from Dublin and it booked €10.4bn in sales
in 2012 and expenses of €32,750 -- it doesn't even have an employee.
The funds come from Dublin
for onward transfer to Bermuda.
Pfizer, Ireland's largest
merchandise exporter, is owned by Dutch partnership and it has a similar
5. BEA FDI (foreign direct
investment) data gets an official imprimatur from Richard
Bruton, enterprise minister, who in 2013 launched
the American Chamber of Commerce in Ireland annual FDI report
Last year the chamber made a
bold claim: "In the past half decade, US firms have invested more capital in
Ireland than in the previous half century."
Finfacts reported last
October that despite a claim of new investment of $129.5bn in the period
2008-2012, only 3,300 permanent net jobs were added by US firms in Ireland.
In this case, the data is
distorted by tax avoidance as retained earnings reflect tax-related 'trapped
cash' that is counted as an inflow.
Finfacts 2013: Ireland's
confusing FDI data in age of spin
6. Noonan has said: "Ireland
cannot tax profits that are properly attributable to other jurisdictions" but
its resident companies book the revenue and what is profit is transferred out
without any tax via charges with a small amount reported as net income in
Ireland. Besides, the transfers end up in Irish companies in other jurisdictions
and if the Irish Revenue did some checking, it may find that the profits are not
Google has reported UK
revenues of $5.6bn in 2013 but it may have booked up to $5.0bn in Dublin with no
tax liability on the profit.
Note again that huge revenues are booked in Ireland that are unrelated to
activity in Ireland and become part of the national accounts but Noonan argues
that even though the related profits are moved from Ireland and end up in Irish
companies in tax havens, they should not be classified as Irish.