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Irish government votes to not question Apple, Google over tax practices

post #1 of 35
Thread Starter 
The Irish parliament's finance committee has decided it won't bring in executives from Apple and Google for questioning over their use of the country for its low international tax rate.

Cork
Apple's headquarters in Cork, Ireland, via Flickr user Sigalakos.


A member of the Joint Committee on Finance attempted to get a motion passed this week that would have allowed the Subcommittee on Global Taxation to call in corporations for an inquiry, according to The Guardian. Specifically, Pearse Doherty was hoping to bring in companies such as Apple and Google, which have gained attention in recent years for their so-called tax shelters in Ireland.

Doherty's motion was denied, however, which means the subcommittee will not haul in executives from the companies for questioning. Apple Chief Executive Tim Cook did testify before a U.S. Senate subcommittee in May over his company's tax rates.

Of issue to some officials in Apple Operations International, an Ireland-based entity owned by Apple that has allowed Apple to pay a very low international tax rate. That's because in the law in Ireland states that only companies that are managed and controlled in the country are considered tax residents.

Apple Operations International is incorporated in Ireland, but is not managed and controlled there. In contrast, U.S. tax laws are based on where a company is incorporated ? not where it is managed and controlled ? leaving AOI to pay zero taxes.

In all, Apple has three offshore corporations that the company uses to legally reduce its effective tax rate to 15 percent. That's less than half of the U.S. effective tax rate of 35 percent.

The practice of using Ireland to shelter international money from taxation has become infamously known as a "Double Irish." The method earned its name because companies are required to set up two Irish companies to utilize the loophole ? one company that owns the intellectual property rights, and another that licenses those rights and keeps its profits low.

Whatever profits are collected through the second company are taxed at a rate of 12.5 percent, or nearly a third of the 35 percent international tax rate imposed by the U.S. government.

Officials in Ireland began calling for an international crackdown on tax dodging by multinational corporations in May, after the government's laws came under scrutiny from officials around the world. But if the country does end up revising its tax laws, it appears it will do so without grilling executives from those companies.
post #2 of 35
That 45 degree brace bar on the portico in the photograph looks... err... rather un-Apple like.

Dodgy Irish builders, perhaps?

/s
post #3 of 35
Why would the Irish want to shoot themselves in the head by questioning corporations for taking advantage of their low tax rates?
post #4 of 35

Of course it makes sense - if there are anamolies the companies are not responsible. The politicians themselves or the departments are responsible. 

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post #5 of 35
They have nothing to gain and everything to lose by doing so. At least they are smart enough to realize that.
post #6 of 35
Tired of this being called tax dodging. Tax deferral is more appropriate. Even a pro Apple site like AI cannot resist the idiocy.
post #7 of 35
If they, or any government, has a problem with a company legally paying taxes, following the laws they enacted, they should be spending time fixing or changing the laws, not parading companies to make it look like they are doing something.
post #8 of 35
So Apple pays Ireland back with 3 Apple Stores?

:-(
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post #9 of 35
Quote:
Originally Posted by Phone-UI-Guy View Post

Tired of this being called tax dodging. Tax deferral is more appropriate. Even a pro Apple site like AI cannot resist the idiocy.

I like 'tax dodging'. It's a good image: The Man throwing the book at citizens and they're bobbing and weaving as they run up to him to stab him in the heart with a sword.

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post #10 of 35
It isn't a total shock. As long as Apole etc are following their laws they can't really do anything about what happens in other countries. Or doesn't happen. As Tim Cook said, 'we follow the laws, if that bothers you then change the laws'

That counts in Europe etc also. If a country like say France doesn't like that their laws allow a company like Apple to have their corporate office in Ireland and avoid paying French corporate taxes then change the law that if they do any business in Franch they have to pay the taxes on that business regardless of where their office is. I don't think Apple would fuss over having to pay taxes to a country for the business that takes place IN THAT COUNTRY if that is the law. Whether its the US, France or wherever. It's taxing money earned elsewhere that they feel is unfair, especially at the same rate as 'local earnings'.

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post #11 of 35
"We'd rather have their business."
post #12 of 35
Quote:
Originally Posted by Phone-UI-Guy View Post

Tired of this being called tax dodging. Tax deferral is more appropriate.

Tax deferral would suggest they will pay what they were expected to pay on previous earnings at a later date. They've already paid tax on those earnings well below the expected rate so this won't happen.

If you want a phrase that makes you feel good about it, call it tax charity. Rather than keep all the tax liability for themselves, they are sharing it and giving the gift of increased tax burdens to others.

You could also divert your attention to other offenders like Google or Microsoft:

http://www.bloomberg.com/news/2010-10-21/google-2-4-rate-shows-how-60-billion-u-s-revenue-lost-to-tax-loopholes.html

Apparently they're even worse:

http://appleinsider.com/articles/13/05/22/like-apple-google-yahoo-also-avoid-taxes-by-way-of-ireland

"Unlike Google or Yahoo, Apple does not hold money on a Caribbean Island or have a bank account in the Cayman Islands."

Don't be eviler Google.

It's not tax deferral when they do it either. That Bloomberg article is from 3 years ago so that'll give you an idea of how soon this is going to be dealt with.
Quote:
Originally Posted by jameskatt2 
Why would the Irish want to shoot themselves in the head by questioning corporations for taking advantage of their low tax rates?

International relations:

http://arstechnica.com/business/2013/01/no-more-dutch-sandwich-the-netherlands-reviews-its-role-in-tax-evasion/

"We should not be a tax haven,” Ed Groot told Bloomberg’s correspondent, Jesse Drucker, who has been reporting on this issue for years and has become the de facto expert on the issue. Groot is a parliament member from the Dutch Labor Party, the Netherlands’ ruling faction.

“If they go somewhere else we are not sorry at all because they spoil the name of Holland"

"Everywhere you look, governments are cutting back on spending for teachers, police, fireman—things that the citizenry generally wants more of," Robert Goulder, the editor-in-chief of Tax Analysts' international publications, told Ars. "That's tough for a lot of people to absorb when corporate profits aren't being taxed in a meaningful way."
Quote:
Originally Posted by Ireland 
So Apple pays Ireland back with 3 Apple Stores?

That's more per population than London. Just all move closer together so it doesn't seem so bad.
post #13 of 35
Sounds like some politician got taken out to the woodshed.
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post #14 of 35

@Marvin it is tax deferal. Apple owes the tax unpaid in Ireland to the US on repatriation 

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post #15 of 35
Quote:
Originally Posted by Phone-UI-Guy View Post

Tired of this being called tax dodging. Tax deferral is more appropriate. Even a pro Apple site like AI cannot resist the idiocy.

 

I'd call it a tax dodge. A perfectly legal one, but a dodge nonetheless.

The more I think about it, I wonder is it really just about taxes? Or is it about intellectual property ownership? As I understand from the stories I read, Apple lowers it's US taxes by deducting the cost of the IP licensing from their own Irish subsidiary. Licensing IP is a perfectly legit business expense, but does anyone really think Apple Ireland played any significant role in developing that IP in the first place?

What transaction took place that gave them ownership of the IP which they then licensed back to Apple US (or whichever country you are talking about)? The value of that IP to Apple Ireland is far in excess of any montery gain to Apple US for transfer of ownership, and thus little, if any, US taxes were paid for the "sale" of that IP from which Apple Ireland now benefits so greatly. Is this IP "loophole" what the other companies are using as well?

While I'm confident Apple (and probably those other companies) are fully compliant with the law, that IP loophole is what allows such a massive "dodge" of taxes.
Edited by Wiggin - 7/5/13 at 12:53pm
post #16 of 35
Quote:
Originally Posted by Wiggin View Post

 

I'd call it a tax dodge. A perfectly legal one, but a dodge nonetheless.

The more I think about it, I wonder is it really just about taxes? Or is it about intellectual property ownership? As I understand from the stories I read, Apple lowers it's US taxes by deducting the cost of the IP licensing from their own Irish subsidiary. Licensing IP is a perfectly legit business expense, but does anyone really think Apple Ireland played any significant role in developing that IP in the first place?

What transaction took place that gave them ownership of the IP which they then licensed back to Apple US (or whichever country you are talking about)? The value of that IP to Apple Ireland is far in excess of any montery gain to Apple US for transfer of ownership, and thus little, if any, US taxes were paid for the "sale" of that IP from which Apple Ireland now benefits so greatly. Is this IP "loophole" what the other companies are using as well?

While I'm confident Apple (and probably those other companies) are fully compliant with the law, that IP loophole is what allows such a massive "dodge" of taxes.
Wrong. That "IP" loophole is no loophole. If it didn't exist no company would ever buy a company outside it's jurisdiction. Or set up a subsidiary outside its jurisdiction. That would end world capitalism. 
 
The problem isn't that Apple Europe isn't owed this money, it is. it's that Apple isn't paying money in Ireland, or anywhere. That's the loophole - one which involves different counties definitions of residency. Ireland taxes tax resident countries if they are incorporated in Ireland, the US doesn't tax incorporated companies which are not tax resident. The US could fix its laws as much as Ireland. 
 
And not paying tax in Ireland means that Apple will owe more in the US on profit repatriation. Hence it's a deferral. 
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post #17 of 35

I would think that many of the other countries in the EU would be the ones wanting to question Apple, Google, Microsoft, etc.

 

Quote:
Originally Posted by asdasd View Post

And not paying tax in Ireland means that Apple will owe more in the US on profit repatriation. Hence it's a deferral. 

 

Absent a US tax holiday, that money will never be repatriated.  Especially since it can be "borrowed" against via bond sales at much lower rates than current corporate tax rates. 

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post #18 of 35
Quote:
Originally Posted by John.B View Post

I would think that many of the other countries in the EU would be the ones wanting to question Apple, Google, Microsoft, etc.

 

 

Absent a US tax holiday, that money will never be repatriated.  Especially since it can be "borrowed" against via bond sales at much lower rates than current corporate tax rates. 

The other countries have no claims on Apple's corporate tax same as Ireland has no claim on BMW's. 
 
As for a holiday - if that happens and it's a gain to the treasury if it does - the rate will be lower than 35% but not 0%. If it was 12.5% or lower than were full tax paid in Ireland nothing would be owed in the US. Apple paying no tax in Ireland means it is likely to pay more on repatriation. 
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post #19 of 35
Quote:
Originally Posted by asdasd View Post

Wrong. That "IP" loophole is no loophole. If it didn't exist no company would ever buy a company outside it's jurisdiction. Or set up a subsidiary outside its jurisdiction. That would end world capitalism. 
 
The problem isn't that Apple Europe isn't owed this money, it is. it's that Apple isn't paying money in Ireland, or anywhere. That's the loophole - one which involves different counties definitions of residency. Ireland taxes tax resident countries if they are incorporated in Ireland, the US doesn't tax incorporated companies which are not tax resident. The US could fix its laws as much as Ireland. 
 
And not paying tax in Ireland means that Apple will owe more in the US on profit repatriation. Hence it's a deferral. 

 

So let’s say your tax resident loophole is “fixed”. The IP loophole (I’m still going to call it a loophole, despite your objections) still exists. The company in question can still find a cheaper corporate tax jurisdiction than the US and avoid paying US taxes by essentially giving away it’s IP to the subsidiary in the lower tax rate jurisdiction and then licensing the IP back to itself and deducting it as a business expense in the US. Ireland’s low tax rate and tax residency laws just magnify the issue by giving them a very, very low tax rate.

Let’s say instead of Ireland Apple sets up shop in some country with a 20% corporate tax rate and without Ireland’s tax residency rules. Every dollar Apple US pays to that subsidiary for licensing is then taxed at 20% instead of the US’s 35%. Still a huge tax savings. Just not as big as today’s setup. Apple US is essentially giving away something of very great value to its subsidiary (or selling it cheap) and thus not paying any taxes on the “profit” of that IP sale in the US, and then claiming as an expense the licensing of that IP. (There's a few similarities to money laundering techniques here, no? All perfectly legal, of course.)

Imagine if it wasn’t IP, but something more tangible. What if Ford made a car in Detroit and then gave it away to an overseas subsidiary to sell back, at a profit, to Ford in the US just so they could record that profit in the subsidiary’s lower tax jurisdiction instead of the US. That’s absurd because of the transportation costs which would be incurred, but that’s essentially what is happening here, is it not? You think people would be raising red flags if Ford could do that?

You are correct in that perhaps it’s not a loophole that can easily be closed without affecting or “normal” (ie, not used for the sole purpose of avoiding paying taxes in a timely fashion) transfers of IP ownership. But I thought I’d bring it up for discussion. Would/could this still be used to avoid paying taxes even if Ireland’s tax residency rules weren’t a factor? ?

As for it being a tax deferral, gosh, I sure wish I could get an interest free loan (which may or may not ever be paid back) from Uncle Sam in the form of deferred taxes and use that money to invest or do with whatever I want. In the meantime, increase everyone else’s taxes to cover the cost of my free loan.
post #20 of 35
Quote:
Originally Posted by asdasd View Post

The other countries have no claims on Apple's corporate tax same as Ireland has no claim on BMW's. 
 
 

 

But aren't there issues where other countries are also losing out on corporate tax revenue on sales that take place in their country because of this same issue? Wasn't there a story recently about how little corporate tax Apple paid in the UK despite rather healthy sales revenue there? Perhaps I am mis-remembering, but it seems like this is also of interest to other countries as well.

Granted, if Apple UK didn't incur an expense for licensing the IP from Ireland (in the form of paying more of the Apple products they import), they'd incur it for the cost of the IP from Apple US. But given the US's high corporate tax rate, it would be advantageous for Apple to "charge" less for the US IP and book the profit in the UK instead (by charing Apple UK less for the imports).

Either way, I'd guess the UK is losing out on at least some corporate tax revenue. If not from Apple, then from UK based companies that do the same thing. So it's in their interest to investigate as well.

EDIT: BTW, I should state that my questions about how IP is used to shift profit around is only becuase that's the only mechanism I've read about being used to allow this scheme to work. Perhaps there are other mechanisms as well?
post #21 of 35
Quote:
Originally Posted by Phone-UI-Guy View Post

Tired of this being called tax dodging. Tax deferral is more appropriate. Even a pro Apple site like AI cannot resist the idiocy.
Call it what you want (I go for tax minimization), it is in truth apples paying less taxes because of a Irish advantage. I just wonder is Ireland really the blame, or is it something else?
post #22 of 35
Quote:
Originally Posted by Ireland View Post

So Apple pays Ireland back with 3 Apple Stores?

:-(
Actually The Republic of Ireland has NO Apple stores, just Apple authorised Resellers. Northern Ireland has 1 Apple Store in Belfast.
post #23 of 35
Quote:
Originally Posted by Phone-UI-Guy View Post

Tired of this being called tax dodging. Tax deferral is more appropriate. Even a pro Apple site like AI cannot resist the idiocy.

 

Tax avoidance as opposed to tax evasion.

 

The first is legal, the second is not.

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post #24 of 35
Quote:
Originally Posted by charlituna View Post

It isn't a total shock. As long as Apole etc are following their laws they can't really do anything about what happens in other countries. Or doesn't happen. As Tim Cook said, 'we follow the laws, if that bothers you then change the laws'

That counts in Europe etc also. If a country like say France doesn't like that their laws allow a company like Apple to have their corporate office in Ireland and avoid paying French corporate taxes then change the law that if they do any business in Franch they have to pay the taxes on that business regardless of where their office is. I don't think Apple would fuss over having to pay taxes to a country for the business that takes place IN THAT COUNTRY if that is the law. Whether its the US, France or wherever. It's taxing money earned elsewhere that they feel is unfair, especially at the same rate as 'local earnings'.

 

Until they realise that they agreed to be part of the EU, which was set up partly to deal with fragmentation of business by enabling a single EU wide entity rather than one for each country.

 

Somehow I don't think dismantling the EU would go across too well.

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post #25 of 35
Quote:
Originally Posted by asdasd View Post

@Marvin it is tax deferal. Apple owes the tax unpaid in Ireland to the US on repatriation 
Its only a deferal if they ever repatriated the money, and why would theyd ever do that on any significant scale? Some moral sense of loyalty that means they want to have there money in the US? After all when they spend this money, the companies they want to buy from equally want to avoid paying tax's to, so it doesnt really ever have to go back to the US.
post #26 of 35
Ireland won the race to the bottom on tax and went bust as a result. It was then the UK and other EU countries who had to bail them out. It's a shame the UK didn't attach more strings to the bailout.
post #27 of 35
Quote:
Originally Posted by RichL View Post

Ireland won the race to the bottom on tax and went bust as a result. It was then the UK and other EU countries who had to bail them out. It's a shame the UK didn't attach more strings to the bailout.

 

Nonsense

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post #28 of 35
Quote:
Originally Posted by Wiggin View Post

 

So let’s say your tax resident loophole is “fixed”. The IP loophole (I’m still going to call it a loophole, despite your objections) still exists. The company in question can still find a cheaper corporate tax jurisdiction than the US and avoid paying US taxes by essentially giving away it’s IP to the subsidiary in the lower tax rate jurisdiction and then licensing the IP back to itself and deducting it as a business expense in the US. Ireland’s low tax rate and tax residency laws just magnify the issue by giving them a very, very low tax rate.

Let’s say instead of Ireland Apple sets up shop in some country with a 20% corporate tax rate and without Ireland’s tax residency rules. Every dollar Apple US pays to that subsidiary for licensing is then taxed at 20% instead of the US’s 35%. Still a huge tax savings. Just not as big as today’s setup. Apple US is essentially giving away something of very great value to its subsidiary (or selling it cheap) and thus not paying any taxes on the “profit” of that IP sale in the US, and then claiming as an expense the licensing of that IP. (There's a few similarities to money laundering techniques here, no? All perfectly legal, of course.)

Imagine if it wasn’t IP, but something more tangible. What if Ford made a car in Detroit and then gave it away to an overseas subsidiary to sell back, at a profit, to Ford in the US just so they could record that profit in the subsidiary’s lower tax jurisdiction instead of the US. That’s absurd because of the transportation costs which would be incurred, but that’s essentially what is happening here, is it not? You think people would be raising red flags if Ford could do that?

You are correct in that perhaps it’s not a loophole that can easily be closed without affecting or “normal” (ie, not used for the sole purpose of avoiding paying taxes in a timely fashion) transfers of IP ownership. But I thought I’d bring it up for discussion. Would/could this still be used to avoid paying taxes even if Ireland’s tax residency rules weren’t a factor? ?

As for it being a tax deferral, gosh, I sure wish I could get an interest free loan (which may or may not ever be paid back) from Uncle Sam in the form of deferred taxes and use that money to invest or do with whatever I want. In the meantime, increase everyone else’s taxes to cover the cost of my free loan.
There is no tax avoidance here. If an IP is transferred to Ireland or any country it's the way business has to be conducted. If a British company is bought by a US company for patents clearly the US company will transfer IP to the US to manufacture the items it needs the IP for. And vice versa. Any multinational company does this, if it weren't possible there would be no international capitalism. You couldn't buy or licence IP from any country but your own, for instance. The fact that some of there counties may have higher or lower tax rates is largely irrelevant.  You also assume that companies owe tax on all their worldwide income in (either) the higher taxed country or the original country where the company was set up. It doesn't. Toyota pays UK corporate tax in the UK where the UK plant manufactures or resells to Europe. If that weren't the case and IP couldn't be transferred all profits would be taxed in Japan and the UK press would be whining about how Japan steals their tax base. 
 
Meanwhile the UK has partial jurisdiction over any number of tax havens - like Bermuda. It could cut out the tax problems it thinks it has with Apple Ireland - in fact the UK isn't owed any corporate tax - by forcing Bermuda to increase taxes to the UK level. And then Jersey, Isle of Man etc. 
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post #29 of 35
.... and by winning the race to the bottom the world will eventually cease to trade.
post #30 of 35
The laws will be changed in time.
post #31 of 35
All countries should compete with each-other to attract businesses by lowering their taxation.
post #32 of 35
Quote:
Originally Posted by Ireland View Post

So Apple pays Ireland back with 3 Apple Stores?

:-(

If only we had even one Apple Store! Sadly, the only one on the island is in Belfast, which is, of course, in the UK and not the Republic of Ireland. (I had the pleasure of attending the opening, by the way). It's still hard to believe that Dublin didn't get one during the Celtic Boom (maybe Apple really saw it for what it was!!!). Anyway, I do hope we the real thing sometime soon, although the almost-Apple Stores are quite decent in the interim.
post #33 of 35
Quote:
Originally Posted by asdasd View Post

The other countries have no claims on Apple's corporate tax same as Ireland has no claim on BMW's. 

 

???  The corporate taxes being dodged are from sales originating in those "other countries" within the EU that you say "have no claims on Apple's corporate tax same as Ireland has no claim on BMW's." 

 

Side question:  How's that whole EU thing working out for you guys?

 

Quote:
Originally Posted by asdasd View Post

As for a holiday - if that happens and it's a gain to the treasury if it does - the rate will be lower than 35% but not 0%. If it was 12.5% or lower than were full tax paid in Ireland nothing would be owed in the US. Apple paying no tax in Ireland means it is likely to pay more on repatriation. 

 

Where did you get that Apple was paying 12.5% tax to Ireland?  More like +/- 2%.

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post #34 of 35
Sales originating is meaningless gobblegook. The apple plant in Ireland sells at wholesale prices to Europe and thus sales originate there. BMW sells wholesale to Europe and thus sales originate there. And so on. I can't really teach remedial corporation tax here.

I didn't say that Apple paid 12.5% to Ireland. I said if it did it would owe less to the US on repatriation, if any happens.

Ireland in the EU is going ok. Bit of a bump in the road these days but better than the last genocidal union we are part of. Best to look on the bright side.
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post #35 of 35
"The apple plant in Ireland sells at wholesale prices to Europe and thus sales originate there." No they don't Apple gets to originate most of them 'nowhere'. Near zero Irish corporate tax is paid. Not 2%, almost ZERO percent!
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