Irish government votes to not question Apple, Google over tax practices
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.
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.
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.
Comments
Dodgy Irish builders, perhaps?
/s
Of course it makes sense - if there are anamolies the companies are not responsible. The politicians themselves or the departments are responsible.
:-(
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.
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'.
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.
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."
That's more per population than London. Just all move closer together so it doesn't seem so bad.
@Marvin it is tax deferal. Apple owes the tax unpaid in Ireland to the US on repatriation
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.
Quote:
Originally Posted by Wiggin
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.
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
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.
Quote:
Originally Posted by John.B
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.
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.
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?