Irish Hospitality: Tax Haven For Apple Inc. (AAPL), Google Inc (GOOG)
26 September 2013
Posted by: Author: Kieran Ball (ValueWalk)
Author: Kieran Ball (ValueWalk)
There appears to be some dispute over whether or not Ireland is a tax haven. While officially the Irish government says no, a European Commission probe into multinationals based in the country would suggest otherwise. And it all comes down to what is known as the ‘double Irish’.
Double Irish taking a big bite out of tax
No, the ‘double Irish’ isn’t a large fried breakfast, but it is filling the coffers of some of the world’s largest multinationals. It’s is a tax avoidance strategy by which corporations shift income from a country with a higher tax rate to one with a lower tax rate. This is achievable because Ireland does not levy taxes on income booked at subsidiaries of Irish countries outside of the state. The term ‘double Irish’ comes from the fact it takes two Irish countries to complete the transaction, one of which can be in a tax haven such as Bermuda.
What all of this means is, although corporation tax in Ireland is pegged at 12.5%, in reality, the effective tax rate of the Irish subsidiaries of large multinationals is between 2% and 6%.
But who’s picking up the tab?
So, theoretically, if the EU is able to unravel the paper trail of companies using the ‘double Irish’, they might end up having to pay the difference. Needless to say, the amount of the backdated arrears could be huge, making a big difference to both the multinationals’ balance sheet and the Irish state coffers.
Companies known to be using the ‘double Irish’ include Google Inc (NASDAQ:GOOG) , Apple Inc. (NASDAQ:AAPL), Adobe Systems Incorporated (NASDAQ:ADBE), Facebook Inc (NASDAQ:FB), General Electric Company (NYSE:GE), Microsoft Corporation (NASDAQ:MSFT) and Starbucks Corporation (NASDAQ:SBUX) among others. By doing so, these companies have already madesavings amounting to billions of dollars.
And it’s not just the EU that has been scrutinizing the tax affairs of these companies; the U.S. Senate is interested too. It’s not hard to see why when you consider that Apple Inc. (NASDAQ:AAPL) avoided paying tax on approximately $44 billion of income thanks to the ‘double Irish’. It was even alleged by Apple Inc. (NASDAQ:AAPL) in the senate hearings that the corporation negotiated a 2% tax rate with Ireland’s revenue commissioners, yet the Irish prime minister denied this.
A government spokesperson said, "I cannot comment on the tax affairs of individual companies. To do so would breach taxpayer confidentiality and be against the law. But Ireland does not do special tax rate deals with companies.”
Apple picks some low-hanging fruit
Indeed, a closer look at Apple Inc. (NASDAQ:AAPL)’s tax affairs in Ireland seems to show that they actually paid closer to 0.05% on profits of €17 billion. What more likely happened is rather than negotiating a 2% tax rate, the Irish authorities made it easier for Apple Inc. (NASDAQ:AAPL) to benefit from the ‘double Irish’ when Apple pioneered this method of tax avoidance back in the 80s.
Yet still Apple Inc. (NASDAQ:AAPL) Chief Executive Tim Cook testified, "We don’t depend on tax gimmicks.”
One rule for the big fish, another for the minnows
But the Irish government certainly seems reticent to investigate the tax affairs of large multinationals, as it would do so of its own smaller domestic companies.
A spokesman for the Department of Finance said: "International tax planning takes advantage of these differences in national systems and rules. The best way to combat such arrangements is for countries to work together — at EU and OECD level — to examine these structures and consider how international rules can be implemented to ensure fair levels of taxation. Ireland is fully supportive of international efforts in this regard and is an active participant in the OECD project on base erosion and profit shifting which seeks to deal with these issues.”
And it’s precisely because of woolly statements such as this that make it hardly surprising that Ireland is being depicted as a tax haven in the international media.
Taxing times ahead
However, Ireland is part of the EU and subject to the rules and regulations of that larger body. When the EU has finished its investigations, there is a distinct possibility that these schemes will be curbed. At best, the loophole will be closed, at worse, the corporations currently doing the ‘double Irish’ might be chased for back taxes.
The multinationals might be enjoying the ‘double Irish’ today, but it’s the shareholders that could be paying for the hangover tomorrow.
This article first appeared in valuewalk.com