Google, Apple draw transatlantic ire over 'double Irish' tax haven
Big technology companies like Apple and Google are feeling heat on both sides of the Atlantic over their use of Irish corporate-friendly tax policies to pay little, if any tax.
It doesn't have the sunshine, but it does have golf courses, banks, and most important of all, low corporate taxes. Is Ireland now a tax haven for US tech giants?
Schemes with colorful names such as "Dutch sandwich" and "double Irish" have returned to the headlines this week as Ireland's corporate-friendly tax regime has become the crux of debates on both sides of the Atlantic. Apple is under fire in a US Senate subcommittee over the company's purported effective corporate tax rate of a mere 2 percent in Ireland. And reports in the UK say that Google's UK-based sales are finalized in the Republic of Ireland in order to avoid British taxes.
The revelations have taken on an international dimension, reigniting debate about lower tax regimes in Europe, such as Ireland and the Netherlands, being used to to avoid paying tax where the business is actually being done â€“ including in the US.
The emerald tax haven?
Ireland has a reputation as business-friendly jurisdiction and makes much of its educated and English-speaking workforce, but the since the 2007 crisis has gained an unwelcome reputation as an offshore tax haven without the warm climate.
Ireland's corporation tax rate of 12.5 percent is the second-lowest headline in Europe, with only Bulgaria and Cyprus's 10 percent rate lower. Taken on an average basis, Ireland remains at the lower-end of so-called "implicit" tax rates, a measurement of the actual taxes paid.
The government denies Ireland is engaged in facilitating tax avoidance. Speaking in Brussels this morning, Ireland's deputy prime minister, Eamon Gilmore, said Ireland's had a "very strong, very transparent tax regime," and that the problems arose elsewhere.
Nonetheless, the Irish tax regime has proven very attractive to big multinational corporations â€“ so much so that it has given a nickname to one of the more common schemes.
A "double Irish" involves setting-up two Ireland-based companies â€“ for example, Google Ireland and Google Ireland Holdings â€“ one of which is, under Irish law, held to be headquartered elsewhere (usually a very low tax jurisdiction). This company will hold the intellectual property rights, which are then licensed to the second company. The second company can then offset royalty payments to the first as tax-deductible expenses.
Critics charge that Irish government policy encourages companies like Google to set up in Ireland primarily for purposes of tax avoidance.
"Google's Irish employees are on good pay and contribute to the local economy and exchequer, and the company pays 22 million euros ($28 million) in tax [itself]. This is part of the IDA [Industrial Development Agency, a government body] policy of 'headquartering' [in Ireland]. What they don't say is that they headquarter here for tax avoidance purposes," say Michael Taft, an economist with labor union Unite.
"They play countries off against one-another, shifting taxes to places that have no relationship to where the money was created," says Mr. Taft.
But Seamus Coffey, lecturer in economics at University College, Cork, says the while Ireland's corporation tax regime is low, this is a legitimate policy.
"A lot of the things Ireland has set up are with the agreement of other countries. It's not as if we're doing these things on our own. Given the nature of the economy here, we have to carve out a niche for ourselves.Â
"Some of the complaints from politicians, getting CEOs and area managers in front of them in committees, are posturing," he says.
'America's largest tax avoider'?
One of the pioneers of the "double Irish" was Apple, whose CEO, Tim Cook, will take to the Senate Permanent Subcommittee on Investigations today, after the committee found that the company pays a effective corporate tax rate of only 2 percent in Ireland, using the favorable arrangement to shift profits and potentially avoid taxes due in other countries â€“ including at home in the US.
The bipartisan committee has already telegraphed its displeasure with Apple, with Sen. Carl Levin (D) of Michigan saying Apple sought the "holy grail" of offshore tax avoidance. His counterpart on the committee, John McCain (R) of Arizona said yesterday: â€śApple claims to be the largest US corporate taxpayer, but by sheer size and scale, it is also among Americaâ€™s largest tax avoiders."
The Senate investigation has found that two of Apple's three Irish subsidiaries are not tax residents anywhere in the world, being operated out of Ireland but managed from the US, making them neither Irish nor American. A third Irish subsidiary, the committee claims, has paid a fraction of normal Irish corporate taxes, well below the official headline rate of 12.5 percent, already low by international standards.
For its part, Apple issued a statement denying charges of tax avoidance. "Apple does not use tax gimmicks," the statement read, pointing out it was a multinational manufacturer with significant sales in non-US export markets and that these revenues are not taxable in the US.
Apple's operations in Cork, Ireland, which include customer support and manufacturing, employ a workforce of 4,000.
Apple is not alone in government spotlights. Other US tech companies with Irish operations include Hewlett-Packard and Microsoft, both of which have already gone before the Senate subcommittee.
'Don't be evil'
Internet giant Google, meanwhile, also faces censure from British parliamentarians after a former executive claimed the company uses Ireland to avoid paying UK taxes. Barney Jones, who worked for the California-based corporation from 2002 to 2006, told The Sunday Times newspaper that Google "pulled the wool over the eyes of HMRC [Her Majesty's Revenue and Customs] and the British population."
The company organizes its sales via a UK-based marketing team, but completes the sales in Ireland, hiding the fact that UK taxes should be payable, Mr. Jones claimed.
In 2012, the company paid ÂŁ7.3 million ($11.0 million) in corporate tax on sales of more than ÂŁ3 billion ($4.5 billion) in the UK.
Jones claims Google's revenues are taxed in Ireland, again using a "double Irish" under the country's lower rate, and profits moved to Bermuda where no corporation tax is payable at all.
The claims came hot on the heels of British lawmakers accusing Google of â€śdoing evilâ€ť â€“ a play on the corporation's informal motto, "don't be evil" â€“ by using â€śdevious, calculated and unethicalâ€ť tricks to minimize tax liabilities, in a parliamentary hearing last week.
No claim of illegal tax evasion has been made against the company. Google employs 3,000 staff in Ireland. (Editor's Note: The original story was change to correct the number of Google employees in Ireland.)
Parliament is not focusing on Google alone. Internet retailer Amazon has been called to the British Parliament to explain why, despite having substantial physical assets in the country, it runs its tax operations from Luxembourg. And UK tax chief Linda "Lin" Homer told Parliament that she rejected suggestions the department is being "bamboozled" by elaborate and international avoidance schemes.
A UK tax spokesperson declined to comment on the use of specific jurisdictions to avoid tax, but says the body did "all it could do to ensure large companies paid their tax."