Ireland to Tech Companies: Your Tax Loopholes Are Safe
American tech companies that keep their tax burdens low by shifting profits into Ireland will be able to continue doing so in the foreseeable future. Michael Noonan, Ireland’s Minister for Finance, recently reassured large tech companies by noting that the country has no plans to make any major changes to its corporate tax laws. American tech companies such as Apple (NASDAQ:AAPL), Facebook (NASDAQ:FB), and Google (NASDAQ:GOOG) have long taken advantage of Ireland’s favorable tax rates.
“Ireland is one of the most open economies in the world and our taxation system is open, transparent,” Noonan recently told the U.K.’s Telegraph. “All the rules are clearly set down in our national laws and profits earned in Ireland are liable to tax at 12.5pc. On Budget day this year, I published Ireland’s international tax strategy in order to provide a clear and accurate picture of our corporate tax regime.”
Apple, Facebook, and Google have all faced questions at home about their tax avoidance strategies in Ireland. In June, Apple CEO Tim Cook made an appearance in front of the Senate Permanent Subcommittee on Investigations in order to answer questions about the California-based company’s offshore tax practices.
The Senate hearing revealed that Apple avoided income taxes on $74 billion in profit made between 2009 and 2012 by using multiple subsidiaries based in low-tax countries such as Ireland. However, Apple is not the only tech company to take advantage of the differences between the tax laws in Ireland and the tax laws in the U.S. Facebook and Google have also benefited from Ireland’s unique territorial tax system.
Like Apple, both Internet giants have registered companies in Ireland in order to route all of their European income through Ireland. This is perfectly legal under the European Union’s single market policy. However, Facebook, Google, and Apple also use a tax scheme known by the colorful name of “Double Irish.”
As explained by Forbes, the Double Irish involves setting up two separate companies in Ireland. One company owns the intellectual property while remaining a resident of a tax haven, such as Bermuda or the Cayman Islands. The other company licenses the intellectual property of the first company for a sizable fee. After this fee is deducted from the sales income of the second company, it leaves a relatively small amount of income that is then taxed at Ireland’s low 12.5 percent rate. This is considerably lower than America’s current corporate tax rate of 35 percent.
Although this seems like a strange and convoluted tax avoidance scheme, as noted by Forbes, it is perfectly legal under U.S. and Europeans laws. Apple, Facebook, and Google are merely taking advantage of existing legal loopholes in international tax laws.
Although Ireland has no plans to implement any tax law changes that would negatively impact these tech companies’ tax avoidance strategies, the country has made a minor cosmetic change to its tax laws to close to so-called “stateless” loophole, reports Forbes. As previously noted, many companies take advantage of Ireland’s territorial tax laws by using the Double Irish strategy. Most companies, such as Facebook and Google, usually make one of their Ireland-based companies a tax resident of a Caribbean tax haven.
However, Apple’s implementation of this strategy was unique, since one of its Ireland-based companies wasn’t a tax resident of any country. The loophole that allowed Apple to make one of its companies a “stateless” tax entity has now been closed. “We have addressed the ‘stateless’ company issue in the budget,” Noonan told the Telegraph. “The changes that we introduced were very well received and there were OECD [Organization for Economic Co-operation and Development] comments to that effect.”
However, the minor law change will have no real impact on the Double Irish tax strategy. As noted by Forbes, Apple simply has to register one of its companies in a Caribbean tax haven in order to be in full compliance with the new laws. On the other hand, Facebook and Google won’t have to adjust their tax strategies at all.
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