An Irish Apple a Day Keeps International Taxes Away
Ireland on Tuesday bowed to mounting global pressure to work toward eliminating a tax loophole Apple Inc. (NASDAQ:AAPL) used to reap $44 billion in tax savings.
Addressing members of the Irish Parliament during a speech on the 2014 budget, covered in full by TheJournal.ie, Irish Finance Minister Michael Noonan pledged to bring “forward a change in the finance bill to ensure that Irish-registered companies cannot be ‘stateless’ in terms of their place of tax residency.” Noonan specified that “Ireland wants to be part of the solution to this global tax challenge, not part of the problem.”
Apple and Ireland came under fire from the U.S. Senate’s Permanent Subcommittee on Investigations. The committee’s report, released in May, serves as a complement to the hearing. Both were undertaken to gain insight into how Apple was able to “shift billions of dollars in profits away from the United States and into Ireland” using “a special corporate tax rate of less than two percent,” according to the report.
The Financial Times does not believe that the pressure will result in a dramatic departure from Irish tax policy toward multinational companies. Another curious loophole, the “Double Irish,” is likely to remain in place. It is a strategy used by Google Inc. (NASDAQ:GOOG) and Adobe Systems Inc. (NASDAQ:ADBE) to place profits in low-tax regions by utilizing differences in the Irish and American tax codes.
Reuters delved further into this practice. A Dublin-registered subsidiary makes sales to customers in which the subsidiary can be a tax resident in any country, with Bermuda proving to be a popular choice, ensuring that any profit from the subsidiary flow to tax-free channels. This is the system — and country — Google and Microsoft Corp. (NASDAQ:MSFT) use to lessen overseas tax rates.
Chas Roy-Chowdhury, who leads the taxation division at ACCA, an international accounting firm based in London, thinks this is the path Apple is likely to pursue. He told Reuters that the proposed changes by the Irish government “won’t make that much difference” since it would be easy for Apple, like Google, to select Bermuda as a tax residence.
Forbes also doesn’t see the policy change contributing a stitch of difference to Apple’s overseas tax strategy — the publication points out it is completely unlike the U.K.’s pressure on multinational Starbucks Corp. (NASDAQ:SBUX) to begin paying a higher corporate tax rate in the U.K.
Without mentioning any names, British Prime Minister David Cameron attacked the coffee conglomerate, along with Google and Amazon.com Inc. (NASDAQ:AMZN), at January’s World Economic Forum in Davos, Switzerland. Five months later, in June, The Guardian was able to report that Starbucks paid its first corporation tax to the U.K.
But Noonan’s words, according to analysts, will not change the scene or usher in reforms forcing Apple to pay taxes like Cameron’s campaign against Starbucks did. Apple could, however, no longer be “stateless,” and it may find that Bermudian breezes make for an inviting tax situation.
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