The issue of effective tax rates, especially for the corporate income tax, rightfully continues to attract a lot of attention. The front page of The Irish Times features a story by Carl O’Brien which is based on a recent paper produced by Prof. Jim Stewart. The paper argues that:
“data from the US Bureau of Economic Analysis gives a more accurate estimate of effective tax rates for US subsidiaries operating in Ireland and elsewhere. This data shows that for 2011, US subsidiaries operating in Ireland have the lowest effective tax rate in the EU at 2.2%.”
The paper provides a useful critique of the World Bank/pwc report on effective tax rates but to argue that the BEA data tells us anything about effective tax rates in Ireland is wide of the mark.
For Ireland, the BEA data indicate that, in 2011, US companies here had $144 billion of net income and paid an affective tax rate of 2.2 per cent. The low effective tax is correct but it wasn’t achieved in Ireland.
There is nothing close to $144 billion of US MNC profits in Ireland. Such massive profit figures do not appear in the statistics produced by either the CSO or the Revenue Commissioners. The gap between GDP and GNP is large but it is not that large.
The post continues below the fold. Apologies for the length.
For 2011, the Revenue Commissioners report that the gross profits of all companies in Ireland was €74 billion. After capital allowances, losses carried forward, trade charges and other adjustments net taxable income was €40 billion. This table shows the calculation for 2010 data.
On page 36 of their Business in Ireland 2010 release the CSO say the following:
Foreign multinationals in Ireland – the story for 2011
It is estimated from the Structural Business Surveys that over 3,300 or 2.1% of the 155,600 enterprises in the business economy in Ireland were foreign-owned in 2011.
Despite the small number of foreign-owned enterprises, they were very significant in terms of employment, turnover and GVA. Foreign-owned enterprises employed over 250,000 or 21.8% of the 1,151,000 persons engaged in the business economy. Foreign-owned enterprises generated almost €176.9 billion or 55.9% of the €316.2 billion in total turnover. Foreign-owned enterprises generated over €48.9 billion or 57.4% of the €85.2 billion in total GVA.
So foreign-owned enterprises generated around €49 billion of Gross Value Added (GVA). To get Gross Operated Surplus (GOS) remuneration of employees would have to be subtracted (250,000 times say €40,000 is €10 billion). That gives around €39 billion of Gross Operating Surplus for ALL foreign-owned companies in Ireland.
“Gross Operating Surplus” as recorded by the CSO is a different measure, though somewhat similar in principle, to “Net Income” reported to the Revenue Commissioners. The point is simply that nothing in Ireland gets us close to the $144 billion income figure reported by the BEA.
The CSO’s Balance of Payments gives us a measure of “repatriated profits” out of Ireland. Here are the income outflows attributed to “Direct Investment Income: Income on Equity” for the past four years, which are recorded in the time period they are earned.
2009: €33.2 billion
2010: €36.1 billion
2011: €38.0 billion
2012: €38.8 billion
In 2011, direct equity investment in Ireland (where one foreign shareholder owned more than 10 per cent of the company) had earnings of €38.0 billion. Again this is for ALL foreign nationals not just US MNCs.
So is the $144 billion profit figure reported by the BEA incorrect? No. But it is important to know what it actually represents. Here are two extracts from the BEA methodology for the statistics they produce:
If an operation or activity is incorporated abroad—as most are—it is always considered a foreign affiliate.
[.] if a business enterprise that is incorporated abroad by a U.S. person conducts its operations from, and has all of its physical assets in, the United States, it is treated as an incorporated foreign affiliate in the country of incorporation, even though it has no operations or physical assets there. This treatment ensures that the foreign entity is reported to BEA.
Why are these important? They highlight that for companies, US residency rules are based on paperwork rather than activity. Under US law, the tax-residence of a company is the country where it is incorporated. All companies registered in Ireland are thus considered “Irish-based” under US law.
Ireland is similar in many respects but we have a slightly more intricate approach when it comes to determining corporate tax residency. Historically, the rule was (from revenue.ie):
All companies whose central management and control is exercised in Ireland (whether it is incorporated in Ireland or not) is regarded as resident in Ireland for tax purposes.
This was revised in the Finance Act, 1999, and now:
in general, companies incorporated in the State are resident in the State.
One of the exceptions to this is:
a company that is ultimately controlled by persons resident in the EU or in a country with which Ireland has concluded a double taxation treaty or is is related to a company the principal class of the shares of which is substantially and regularly traded on one, or more than one, recognized stock exchange in an EU Member State or in a tax treaty country.
Thus, some foreign-owned, Irish-incorporated companies will not be viewed as tax resident in Ireland if they are not centrally managed and controlled here. Prior to 1999 this was also possible for companies owned by Irish residents but the changes in the Finance Act 1999 tightened up the exceptions to the test of incorporation to foreign-owned companies only.
So what is at play here is that there are Irish-incorporated companies who, for want of a better word, “live” somewhere else. Just like our income tax system does not levy income tax on Irish nationals who live abroad, our corporation tax system does not levy corporation tax on (some) Irish corporations who carry out their activities abroad.
There is little that is unique or unusual about this. The issue is how our rules interact with rules of other jurisdictions, and the US in particular.
When the US Bureau of Economic Analysis says that US-owned, Irish-based companies had $144 billion of profits in 2011 we actually have to go to Hamilton, Bermuda to find a good chunk of it (where Google Ireland Holdings is managed and controlled from) or Cupertino, California (where Apple Operations International is managed and controlled from).
Apple has been reporting annual net income of around $40 billion for the last few years. The company was the subject of a very information US Senate investigation in May. Here is an extract from the opening statement given by the committee chairman Sen. Carl Levin (D) to the hearing about three Irish-incorporated Apple subsidiaries:
Take AOI. AOI has no owner but Apple. AOI has no physical presence at any address. In thirty years of existence, AOI has never had any employees. AOI’s general ledger, its major accounting record, is maintained at Apple’s U.S. shared service center in Austin, Texas. AOI’s finances are managed by Braeburn Capital, an Apple Inc. subsidiary in Nevada. Its assets are held in a bank account in New York.
AOI’s board minutes show that its board of directors consists of two Apple Inc. employees who live in California and one Irish employee of Apple Distribution International, an Irish company that AOI itself owns. Over the last six years, from May 2006 through the end of 2012, AOI held 33 board meetings, 32 of which took place in Cupertino, California. AOI’s lone Irish-resident director participated in just 7 of those meetings, six by telephone, and in none of the 18 board meetings between September 2006 and August 2012.
ASI’s circumstances are similar. Prior to 2012, ASI, like AOI, had no employees and carried out its operations through the action of a U.S.-based board of directors, most of whom were Apple Inc. employees in California. Of ASI’s 33 board meetings from May 2006 to March 2012, all 33 took place in Cupertino.
In short, these companies’ decision makers, board meetings, assets, asset managers, and key accounting records are all in the United States. Their activities are entirely controlled by Apple Inc. in the United States. Apple’s tax director acknowledged to the Subcommittee staff that it was his opinion that AOI is functionally managed and controlled in the United States. The circumstances with ASI and AOE appear to be similar.
According to the Senate report, Apple Sales International (ASI) reported pre-tax earnings in 2010 of $12 billion. As the statement from Sen. Levin makes clear ASI carries out all its activities in the US. In the BEA statistics this income is attributed to Ireland because the companies are Irish incorporated company.
These companies are not resident in Ireland for either Revenue or CSO purposes or any purposes. Attributing their effective tax rates to Ireland is disingenuous. Yes, their effective tax rates are low but as the companies are not tax resident in Ireland they are not subject to Irish corporation tax. It is not appropriate to calculate effective tax rates on tax actually paid here using profits in the denominator that are not subject to tax here.
The structures of other US companies provide similar conclusions. Companies such as Google and Microsoft have large sales operations in Ireland but these operation do not report very large profits. Why? Because they pay patent royalties for the rights to use their parent company’s intellectual property. Ireland is a low-tax country for corporations but it is not low-tax enough for them to shift the economic rights of their intellectual property here and it is to the IP that most of the profit is attributed.
Here is a chart from the CSO’s Balance of Payments on patent royalty flows in and out of Ireland.
What does it show us? There are massive outflows of royalty payments (nearly €30 billion in 2011) and much smaller inflows (€4 billion in 2011). There have been efforts in recent Finance Acts to make Ireland more attractive for holding companies but the effect is small compared to the outflows of royalty payments. The outflows hugely reduce the profitability in Ireland of the MNCs operating here.
In 2011 there was a €23 billion outflow “other business services”
Where does this money flow to? Much of it flows to small island nations like Bermuda and the Cayman Islands. Google book massive advertising sales revenues in Ireland but the profit is attributed to intellectual property that is held in Bermuda. The holding company, Google Ireland Holdings is Irish incorporated but the royalty payments made to it are outflows in the Balance of Payments and the profit is not taxable in Ireland. Microsoft’s Round Island One is also resident in Bermuda though Irish incorporated.
In recording massive sales for US MNCs in Ireland the BEA is correct. These are also evident in the CSO data. However, the profit from these sales is shifted out of Ireland in the form of patent royalty payments. The BEA attribute these profits to Ireland as the holding companies are Irish incorporated.
Google, Apple and all US MNCs are liable for US corporation tax at 35 per cent on their worldwide profits (with offsetting credits given for corporate income tax paid in other countries). Because of the structure of their businesses and the nature of their profits (passive income generated by intellectual property) they do not have to pay this tax liability until the profits are repatriated to the US. In the case of Apple the profit is already in the US as highlighted by Sen. Levin and is managed in Reno, Nevada by Braeburn Capital while being kept in US banks. However, because it is controlled by an Irish-incorporated company it is still deemed “offshore” under US law. There is nothing to indicate that this money ever even passed through Ireland.
The reality is that the non-US profits of these MNCs are booked in low-tax or no-tax jurisdictions (or sometimes even no jurisdiction at all). Bermuda has a corporation tax but the rate is zero. The change announced in last October’s budget means that Irish incorporated companies will, from January 2015, no longer be able to make themselves tax resident no where. It is likely that this will mean even more profits being booked in the Caribbean.
The discussion should be about putting in place measures to curb the ability of MNCs to shift their massive profits to locations where they have no substance but can pay very little tax. In many cases Ireland is part of the chain but we are not at the end. Attributing effective tax rates to profits that don’t accrue here gets the issue on the front page but adds little to the debate.
38 replies on “Effective Tax Rates”
I’m not sure this blog addresses the key issue which is whether Ireland is facilitating multinational companies by allowing them operate here, but make large royalty and license fee payments to their holding companies in Bermuda etc! (treated as an imported service in national accounts).
Frankly the CSO’s accounting treatment has little bearing on whether this constitutes ethical behaviour or not. Yes multinational’s profits are well below $160bn when you look at the Irish national accounts or GDP data. But this is hardly a justification for accounting rules that allow multinational companes siphon revenues to holding companies. In this sense the effective 2% tax rate holds true.
Great post.
I wouldn’t expect the IT to have your knowledge of the situation but given how recently this has all been in the headlines, it is a little disappointing they didn’t have the caveat somewhere in the article “but of course, a huge amount of the income used to measure this effective rate cannot be raxed in Ireland”.
Minister Howlin this morning said we’ve no brass plate companies in Ireland! And our brass plate companies overseas have to have a connection with Ireland.
Your argument here strikes me as pedantic.
The data is supplied by US companies to the US government and includes investment income that may not be provided to the CSO from the Irish resident affiliates.
This division of profit to different jurisdictions whether it comes via Ireland in an accounting sense as happens with Google in respect of all it’s overseas revenues or directly to Irish companies in Bermuda for example, is part of MNC strategies to exploit low tax countries or their willingness to facilitate pass-through transactions.
What is the purpose of Irish mailbox companies in places like Hamilton?
Ireland books the Dutch Irish sandwich transactions as output and exports.
As for the CSO data, you accept that inter-company charges are arm’s length? Of course they’re not.
The point about the Dutch Irish sandwich facility is that the 12.5% tax rate is seen as too high.
Feargal O’Rourke of PwC is reported to have said the BEA data “has a hole the size of the Grand Canyon.”
“It (the research data) is counting companies that have no operations in Ireland whatsoever. They were born here but have no assets, no income, no activity whatsoever. These companies do not operate in Ireland. No wonder you’d get 2.2 per cent.”
This is just bullshit in the absence of any evidence presented.
It’s funny how these non-resident companies are not an Irish responsibility and if Intel whose Irish unit is owned in The Cayman Islands jazzes up its profit directly in Leixlip or it allocates it to an Irish holding company, to me it’s ridiculous for us to say, we know nothing!
I agree with John Maynard Keynes about this. The BEA data reflect the extent to which Ireland is used by multinationals for what is effectively tax laundering. The fact that much of the money ends up in Bermuda, or that much of it passes through the Netherlands on the way there, is irrelevant. The real issue in Irish corporate taxation policy is not the low rate. It is the extent to which Ireland is an accomplice in making corporate profits escape tax altogether.
The recent debate on homophobia had much in common with the tax haven issue.
The Oxford dictionary was quoted in the former case which has a definition for a defamation lawyer rather than the broader definition of George Weinberg, the American psychologist who coined the word.
The OECD has no tax haven among its 34 mainly developed members. In 2009 when President Obama called the Netherlands with its 20,000 mailbox companies and about 10,000 investment vehicles, a tax haven. It protested.
The OECD says Ireland isn’t a tax haven but does it facilitate tax haven activities.
Absent Orwellian manipulation of words, yes.
What does transparent mean?
Hiding your financial accounts at source in Ireland or in Bermuda?
The fact that Jim Stewart’s report is news today shows how ineffective the Oireachtas and many journalists are, in countering official spin.
The template flower pot maker in the PwC study was around when there were arguments in 2010 with Nicolas Sarkozy on tax.
In January 2013 when Kenny first used the 11.9% talking point, I posted a response on Finfacts
Kenny used it several times since without challenge.
At the end of the day we assist the worlds biggest most profitable companies to dramatically reduce their global tax bill. In my book that’s just wrong. It’s mainly the shareholders that hit the jackpot in such an arrangement. Locally Ireland INC gets a few PAYE jobs which the natives don’t have the skills for, despite unemployment running at circa 13%.
Ironically a lot of these companies are in the business of replacing jobs with machines, and will, most likely be a net destroyers of jobs over time. I doubt a world filled with Googles automated cars will employ as many as programmers as drivers they’ll eliminate.
So Capital is kicking labours ass all over the world and what is little auld Ireland doing. It’s shining Capitals boots.
@Mr Keynes
Perhaps this is an appropriate time for Mr Kenny, Mr Gilmore and the rest of the gang,to postpone having their photos taken and pour themselves a large glass of double Irish and relax.
In defence of this government they have always been consistent, and they can never be accused of telling the truth;
@ John Foody
I listened to the Morning Ireland interview and Feargal O’Rourke of PwC concluded by saying the US Bureau of Economic Analysis data was “meaningless” – even though he could not support that claim.
He also said Irish branch operations are not includes – I doubt that as a branch is just a suitable legal structure.
Basically, in such a format with limited time, you can say whatever suits, to a general audience.
However, some metrics cannot be easily batted away.
American Plutonomy: Richest 5% account for almost 40% of consumer spending
As Michael Hennigan points out, the low effective tax rate is old news. Despite protestations to the contrary it has been used in advertising by the large accountancy and law firms since 2010.
http://www.irishleftreview.org/2013/11/28/12529/
Seamus Coffee is choosing to dismiss a large and consistent database in order to support an elaborate scheme of legislation and adherence to accountancy standards that clearly is only advantageous to a small tier of well paid accountants and lawyers. All that this blog post claims to show is that Ireland is just one link in the chain used by MNCs to avoid tax. But some links are more important than others. Obviously MNCs do not want to base their European HQs, nominally present in Ireland, in countries like Bermuda. Ireland goes some way towards providing them with the unique ability to allow them to in effect, base themselves in a zero corporation tax jurisdiction. We can see that from the table in this Central Bank of Ireland report (page 59) which shows that the top three countries that Ireland obtains inward direct investment and sends outward direct investment are Bermuda, Luxembourg and the Netherlands in that order.
http://www.centralbank.ie/publications/Documents/Quarterly%20Bulletin%20Q2%202012.pdf
In 2010, just before those Arthur Cox ads went up saying Ireland had an effective corp tax rate of 2.5%, the Irish Minister for Finance introduced Ireland’s first arms length legislation as a response to repeated criticism that we had no CFC legislation and that there was nothing in place to deal with abuse of transfer pricing mechanisms.
“the introduction of transfer pricing legislation to regulate arm’s length trading between associated companies. […] The opportunity is being taken to introduce general transfer pricing legislation which will align Ireland’s tax code in this area with the international norm”.
As soon as the legislation was published, however, an exception was provided by the Dept of Revenue to clarify the issue.
http://www.kpmg.com/IE/en/services/Tax/Documents/StatementofPractice.pdf
As KPMG pointed out at the time:
“This has followed on from submissions and lobbying by the tax profession, including KPMG, and industry. Payments made to associated companies in EU Member States and to tax treaty residents are already exempt from withholding tax, provided certain conditions are met. Essentially, this Statement of Practice extends relief from withholding tax on non-Irish patent royalties paid to other, non-treaty, jurisdictions.”
http://www.kpmg.com/ie/en/services/tax/pages/withholdingtax.aspx
Ireland actively provides the means for the level of tax avoidance recorded by BEA data that Seamus is in a hurry to dismiss as irrelevant. It is through this active promotion of tax avoidance services that we are told that Ireland can recover from the most expensive banking crisis since the Great Depression, even though this activity, as the Central Bank of Ireland and the top economist in Revenue admit, has barely any impact on the real economy. http://dublinopinion.com/2014/01/29/phantom-finance-and-the-irish-state/
@Seamus Coffey,terrific post great stuff,as a aside congrats on your big day out,enjoyed the analogy pity Barney Curly wasn’t available to help ‘pick’ a few winners for the various protagonists.
Just reading Jim’s paper but today Francois is having a word with the POTUS here about ….TAXES and IRELAND…..
I mean come on just before Enda marches in ‘that’ parade and hands over a bowl off weeds/flowers,the irish diplo’s must be simply dreading this years paddy’s day,there will be protests in NY about ‘that’ parade loud noisy ones too….
The ‘mood music’ here is vehemently anti tax avoidance,all those bleeding hearts and loony lefties are getting a tad upset,income inequality and all that…
“François Hollande is to press Barack Obama on tax avoidance by big Silicon Valley companies such as Google, saying that the practice of shifting tax liabilities around Europe was “not acceptable”.”
“Google has reduced the amount of tax it pays in France by funnelling most of its revenue through a Dutch-registered intermediary and then to a Bermuda-registered holding, Google Ireland Limited, before reporting it in low-tax Ireland.”
http://www.theguardian.com/world/2014/feb/06/francois-hollande-us-tech-firms-tax-schemes
The study might make more sense if he had used the phrase
‘ US subsidiaries registered in Ireland, rather than the phrase ‘ US subsidiaries operating in Ireland’.
There is a distinct difference, as Seamus Coffey has pointed out.
Whether there should be or not is a different matter.
That said, Fergal O’Rourke and PWC, need to come up with a better briefing document than the mythical- California dreaming- Flower Pot company, to substantiate the effective rate they claim to represent the truth of the matter.
Another fat consultancy fee coming up, no doubt.
Would it be arithmetically pedantic of me to point out that companies that “have no assets, no income, no activity whatsoever” would result in zeroes in both numerator and denominator of any rate calculation, and so wouldn’t affect the result?
@ Joseph Ryan
Under pressure from existing MNCs, they got an exemption from the 1999 reform of company law.
These non-tax resident companies are used for tax avoidance. In other jurisdictions, gun running and drugs would be the use.
The “Dutch Irish Dutch Sandwich” is not just a pass-through between different Irish companies but the amounts create virtual Irish output, and exports.
@ Donagh
You reminded me of Cox’s sales pitch:
Arthur Cox, Ireland’s biggest corporate law firm, said in a January 2011 tax briefing, ‘Uses of Ireland for German Companies’:
http://www.finfacts.com/biz10/Ireland_tax_multinationals_IP_intellectual_Property.pdf
It is believed that the global company referred to is Accenture, the US management consultancy, which moved its headquarters from Bermuda to Ireland in 2009.
Also in 2009, Cooper Industries with a payroll of 25,000 moved its headquarters from Bermuda to Maynooth, Ireland, to give the location more legitimacy in the eyes of US politicians. In 2012 it was acquired by Eaton, another US electric systems company, with a payroll of 75,000 and the bigger Eaton decided to move the headquarters of the expanded group to Ireland and save an annual $160m on its tax bill.
It is likely has a small number at the hq and Ireland isn’t a tax haven!
Michael – I’m afraid you are misquoting me on more than one occasion above 🙂
In relation to the US BEA data, I have no problem with that. It measures the profits of companies INCORPORATED in Ireland whether or not they have activities here or not.
Jim’s paper takes this data and he states”This (US BEA) data shows that for 2011, US subsidaries OPERATING IN IRELAND have the lowest effective tax rate in the EU at 2.2%”
You can see the problem – companies which are counted by the BEA are – in the case of non resident companies – not operating in Ireland at all.
I have no problem with a debate – just Jim’s use of the facts are incorrect.
@MH
Whatever about the accuracy of the numbers the damage is being done in headlines without analysis…
http://www.bloomberg.com/news/2014-02-11/weil-on-finance-yes-ireland-is-a-tax-haven.html
@ JG
At least Hollande is going to the right address with his pleas!
There is, on the evidence, a gaping hole in factual terms in the research paper under discussion. If there is not, those in support of it should explain why.
@ All
The speech today of the Commissioner in charge of competition.
http://europa.eu/rapid/press-release_SPEECH-14-119_en.htm
Notably;
“Before I conclude, I would like to say a few words on taxation, from the perspective of State aid control. Governments and international bodies around the world are showing a renewed interest in corporate-tax regimes, in particular the G20 and the OECD – represented here by Ángel Gurría. Because of the gaps in national tax laws, many of the largest multinational companies pay very low taxes, and they don’t need to break the law to do it. The present state of affairs undermines the fairness and integrity of tax systems and – in the European context – it has several undesirable implications. Among other things, it is socially untenable. How can governments ask ordinary citizens to accept adjustments and pay their fair share of taxes if big companies don’t?
But here I am talking from the competition policy perspective. The reason to tackle taxation from the State aid standpoint is simple. Selective taxation is economically inefficient, because it distorts the level playing field for the allocation of capital within the internal market. This is particularly the case for the digital, creative, and other industries based on intellectual property. In these sectors, it is easier for companies to push activities from one country to another and take advantage of the gaps that exist within the EU.
And this is where competition policy gets into the picture. Because aggressive tax planning is contrary to the principles of the Single Market, even under the present distribution of competences between the EU and its Member States. A limited number of companies actually manage to avoid paying their proper share of taxes by reaching out to certain countries and shifting their profits there. In those cases where national laws or tax-administration decisions permit or encourage these practices, there might be a State aid component involved and I intend to go to the bottom of it. This is why in the last few months we have been sending requests for information to some Member States where we have doubts about the consistency of some aspects of their legal framework or of their administrative practices.”
The Commissioner will, one assumes, be leaving his post in November and the task of “getting to the bottom of it” will presumably largely fall to his successor.
Hard to see the Govt defending this successfully long term. Switz couldn’t save bank secrecy..,,
@DOCM hes going stag,thats the big issue simply ruined the seating plan..
The numbers look pretty accurate to me,great work Jim.
“Between 2009 and 2012, Google had a non-U.S. average income tax rate of 2.9 percent while eBay Inc.’s bill over the period was 3.1 percent, according to a Reuters analysis of company filings.
But Yahoo, which has struggled to grow revenues and profit in recent years amid strong competition from Google, has one of the higher tax rates in the sector.
Between 2009 and 2012, its overseas income tax rate averaged 27 percent.”
http://www.reuters.com/article/2014/02/07/us-yahoo-europe-tax-idUSBREA160Y420140207
compare contrast to this guff…
“Mr Kenny today hit back at the French criticism, saying that Yahoo! wanted to follow the example of all the big Internet groups which are already installed in Ireland.
“We have been very clear about this all along, our tax rate is 12.5%, 11.9% effective, it is a matter of national competence.”
http://www.rte.ie/news/2014/0207/502778-ireland-oecd-paris/
@FOR tick tock…….
Excellent post Seamus.
I wonder if the Good Professor from Trinners will face any negative consequences for his questionable methodology. The fly in the ointment seems to be the word OPERATING.
Will anything be done about this. Not this side of the Us elections. Moreover, the GOP will probably control the Hill & a lame duck Prez will spend the last two years fighting scandal and selecting a site in Hawaii for his Library.
Spose the postmodernist vicariousness of the global corporate tax system represents the near total hegemony of one side of the financial/capital-labour relation.
I doubt that an entity exists on the planet at the mo that is even capable of considering ‘mental reservations’ on understanding its set of operations.
Must send an inter-galactic text to Seven_of_9.
I was reading through some old issues of Fortune recently and in an article on tax avoidance, with specific mention of Apple, the writer posed the question: ”How can you have a zero tax rate? Ask the Irish.” Soon there’ll be no place to hide and Ireland risks becoming the equivalent of a ‘rogue state’ unless it starts to address the issue. I hope the DoF and the Government have some strategy in mind. Of course, for those of us who have been paying attention to Michael Hennigan in recent years this is all old news. Academia appears to be making some attempt to catch up but, not having the practical experience of an accountancy or tax training or having worked in a multinational for example, it is very likely to make some logical errors.
If multinationals start to pull out of Ireland because we are forced to raise our effective tax rates what then? Are there any other types of business we could attract? I often thought that Ireland, with its common law tradition and English language, could become the European country (or even world country) of choice for international commercial litigation. Of course that would mean lowering legal costs, tackling all the vested interests in the legal profession and running a ruthlessly efficient courts system. Imagine though all the well-paid jobs in legal services that could be created in Ireland. Many Fortune 500 companies have their HQ in the US state of Maryland because of its favourable legislation in relation to incorporation. Ireland could become the dispute resolution country of choice.
@DoD
Apple is an exception but a lot of big American outfits need 2% tax rates since they are fairly shit at generating real value. A BIG problem with neoliberalism per David Harvey. They need low interest rates and low taxes.
@seafoid you need ‘them’ a lot more than they need Craggy Island:)
@ Feargal O’Rourke
Feargal,
I didn’t wish to misquote you.
You did refer to the “Grand Canyon” and at the close of the interview, I got the impression that you implied that the BEA data was “meaningless.”
Jim Stewart did make an error in suggesting that the data relates to companies just operating in Ireland.
However, when giant companies such as Google tell the SEC “our two major tax jurisdictions are the U.S. and Ireland,” it would be foolish/ ridiculous to exclude Irish companies that are part of the tax
avoidance chain which starts in Dublin. The UK is Google’s biggest overseas market accounting for about 11% of revenues.
One year’s BEA data should not be taken as gospel and in 2011, there are some big jumps such as finance and insurance assets by $135bn. Net income also jumped.
I calculated an effective rate of 2.5% in 2010 and low foreign tax rates for several big US firms support the case that low single digit rates are common.
Apple had a foreign tax rate of 1.9% in fiscal 2012, 3.6% in 2013; Google had a foreign tax rate (all its ex-US earnings were routed through Ireland in 2012) of over 4%. According to Microsoft, the rate for Irish, Singapore and Puerto Rican companies in 2011 was approximately 4% – – 5.69% in Ireland; 2.78% in Singapore and 1.03% in Puerto Rico.
The infographic in Jesse Drucker’s profile on yourself is revealing.
Using BEA data for Ireland, look how the earnings diverge from the mid 1990s as companies took advantage of the ‘check the box’ loophole, which had unintended consequences. However, with companies able to effectively buy votes on Capitol Hill, once the loophole was available, efforts to close it, including by the Obama administration, have failed.
Between 1999-2002, reported profits in low tax countries such as Ireland doubled.
http://www.bloomberg.com/infographics/2013-10-28/u-s-profits-in-ireland-pile-up.html
As for the “Grand Canyon” metaphor, I think that would be more appropriate for the Irish national accounts where in 2012, about €40bn (mainly computer services + some business services) of reported services exports related to Dutch Irish Sandwich transactions, were effectively fake. 😳
You must laugh up your sleeve when you observe government ministers, the Central Bank etc claiming that these magic exports reflect competitiveness. 😯
Ireland would have reported a GDP contraction in 2012 but for the sandwich business.
In the real world, while headline exports grew at current prices by 71% in the period 2000-2012 and at constant prices by 59%, there were no net jobs added in internationally tradeable goods and service firms, whether foreign-owned or indigenous.
The total employed in public-agency assisted foreign-owned (FDI) firms was 182,000 in 2000 when FDI jobs peaked, and 176,000 in 2013; the total employed in Enterprise Ireland/Shannon Development supported firms was 183,000 in 2000 and 176,000 in 2013.
I’ll be travelling in capitalist China from today, until next week.
The workforce was 20% smaller in 2000
Good post.
No need to apologize for its complexity – the subject is complex, which is a point the gentlemen of press don’t fully appreciate.
Any hope the IT will devote space to a clarification?
@seafóid
This ‘O’ owes a lot to the ‘Mac’!
@Michael Hennigan
“The Tao is generous and graceful in what it does
Without ever claiming any merit.
And the Sage’s greatness lies
in taking no credit.” [Tao Te Ching #2]
@JG
Under the current memes yeah Apple makes sense but it doesn’t strike me as a very serious outfit. None of the Yank tech outfits do. It’s a lot of navel gazing with the grail as figuring out how to monetize the desires of individual punters in order to sell them whatever the s@p 500 have to sell. And a lot of it is shit. Built in obsolescence. Big problems brewing in US food production around corn fed beef. Links to medical costs if you look close enough, what are medical costs as a % of gdp add in diabetes due to soda and trend out.
So yeah craggy island but check out the floods in dear old blighty. Climate change is here even if the Kochs disagree. And how resilient is the US suburban model? Kunstler would say not very. I th7nk there are massive questions around resource misallocation given what is coming down the line. Ireland isn’t much better but 4m people may be easier to manage than 300m.
@seafoid like WTF…had wait 20 mins yeah 20 mins for good table today…didn’t notice anything wrong with the food:)
I’m here for a few reasons but the ridiculous low CGT rate on carried interests or sweat equity is a big factor.
“Enda Kenny, Taoiseach (Prime Minister) of Ireland has denied that international companies that come to Ireland to benefit from tax breaks known as the “double Irish” pay as little as 2.2 percent, stating the actual rate was closer to 11 percent.
Kenny was countering recent claims in new research from Trinity College Dublin academic, James Stuart, who has suggested Ireland’s effective tax rate for U.S. multinationals may be as low as 2.2 percent.
“He is wrong. The methodology for determining tax differs from academic to academic,” said Kenny.”
http://www.cnbc.com/id/101406835
@JG
Bon appetit. I suppose it will be easier to sort out the tax system.
@ seafoid,apologies if my post was a bit flippant,my own fault should have made a res,i use the wait time at the better joints for walk ins as a kinda canary,despite awful weather NY is very very bustling and busy.
In Toronto for a few days,they can only hope for a ahem soft landing,way way too many condos.Changed the overseas investor visa rules….crash:)
The problem Ireland has is that capital and to a certain extent high net worth individuals are extremely mobile,if the US changed my CGT rate,sure I would review my options.Many New Yorkers have and are relocating to Florida,hedge funds too due to taxes,but I do think they will level the playing field in the EU.
The damage has been done it’s become something off a joke now,yeah yeah we opened a “office” in Ireland,not good.
Yes of course there are issues here,some people have genuine concerns that it’s headed like South America,extremes between wealth,with secure enclaves for the rich like NY and ghettos for the rest like Detroit,Buffalo.
Ireland just keeps getting mentioned…
http://www.bloomberg.com/news/2014-02-11/facebook-s-sandberg-wooed-by-hollande-seeking-start-up-buzz.html
The DB house price to rent index is quite illustrative,apols off topic.
http://www.zerohedge.com/news/2014-02-12/did-canada-just-pop-its-housing-bubble
JG,
you gotta lover President Rice Pudding trying to lure Us tech companies with threats of higher taxes. You have a point on the Irish inversion thingy. It is a little too obvious now and it will end in tears for some. The best thing we could do is tighten it up to exclude extra planatery companies.
@JG
I think the next few years are going to be hard for small countries who think they are special eg Switzerland, Israel…Ireland will probably get clobbered as well taxwise but maybe it could give the necessary kick in the arse required.
The US, German and previous French governments were not concerned about tax avoidance. They made many statements to curry favour with their own taxpayers, but they never lifted a finger to curb the Irish, double Dutch, triple Bermuda with a soupcon of Cayman Islands and a dash of Panama City. Political donations and lack of public awareness were the main factors holding them back.
What has changed is socialist Hollande, Merkel needing the SPD, Obama needing to throw a bone to his base. In the final analysis. we gain little or nothing, with the exception of a few dozen Solicitors and agents. Our reputation is not enhanced by these activities in Brussels or Frankfurt. If we were reaping hundreds of millions in benefits annually it would pay to brazen it out. By rushing blindly to the bottom (12.5 to 2) and being joined by others as shortsighted as we are. Now we are seen as being not overly bright.
@Mickey
In the absence of growth tax will have to plug the gaps. There isn’t much the big companies can say either- most of them are sitting on cash piles because they won’t invest. Something has to change.
The CSO says Foreign-owned enterprises employed over 250,000
M Hennigan says its 176,000.
I always thought it was closer the latter figure. Which is correct?
There is a fair amount of dancing on pinheads here.
I think this makes it clearer.
Jim Stewert quotes the BEA showing the effective rate is 2.2% 3bill/144billion
Saemus Coffee and Fergal O’ Rourke cry foul and say no its more like 7% as its 3 billion/40 billion. The other 100 billion doesn’t count as that profit is not generated in Ireland.
I am sure Jim Stewert would argue that the 100 million profits are in companies incorporated here and they are not paying a penny anywhere else so should be included.
But here is the issue. It is Irish company law that allows these profits to be incorporated in Ireland but registered for tax purposes either in a country that is not the place of business (bermuda etc) or no where on the planet (as was the case in Apple) so our laws are enabling tax avoidance of 100billion profit from other countries by allowing them be incorporated in Ireland and collecting no tax anywhere. Laws allowing companies to be incorporated in one area but pay tax in another if the latter is their centre of economic interest are normal. Laws allowing companies to be incorporated in one jurisdiction and be registered for tax in places that are not the centre of economic interest or no place on the planet are a little Irish.
This activity is not part of a low tax policy. It is something different, it is using Ireland as a conduit for large scale tax avoidance. Ireland doesn’t get a penny extra in corporation tax and the other countries lose about 20 billion in tax (taking 20% average international corpo tax) of 100 billion. The only revenue generated for Ireland is in the administration of these activities.