Ireland: A tax haven for American tech companies like Google, Twitter and Apple but without the sun


Taoiseach Enda Kenny speaks at a business conference in Dublin last week.
Taoiseach Enda Kenny speaks at a business conference in Dublin last week.

The reaction of Taoiseach (Prime Minister) Enda Kenny, senior politicians and the IDA boss to the accusation in the U.S. congressional hearing last week that Ireland is a tax haven reminded me of the famous Jack Nicholson line: "You can't handle the truth." 

Our leaders can deny it all they want, but the simple truth is that they've been caught with their trousers down.  Ireland is indeed a tax haven, and it's the tax haven of choice for some of the biggest high tech companies in the world like Apple and Google, most of which are American.

We may not have the sunshine they have in tax havens like the Cayman Islands, but we're an island and we're a tax haven even if we don't have palm trees leaning over the beaches. 

As Apple admitted, they had agreed an effective tax rate of two percent with Ireland when they first set up here over 30 years ago.  And the tax they have actually paid in Ireland in recent years has been a fraction of one percent. 

Okay, so it's not zero.  But what can you call a country that facilitates tax avoidance on that scale except a tax haven?  It's a long way off our declared 12.5 percent corporation tax rate and it's certainly a long way off the 35 percent corporation tax rate in the U.S. 

So, yes, we're a tax haven.  We may not like the connotations that this has with dirty money and criminality, and we may not be the first choice for dodgy people trying to hide money (although it did emerge last weekend that one of the biggest online porn groups in the world is opening an office here for tax reasons).  

But the revelation has blown out of the water our usual publicity about why so many high tech companies set up here.  We've always said it is because of our highly educated young workforce, our agreeable climate, our open economy, our position on the doorstep of the European market, as well as our 12.5 percent corporation tax rate.  We have always insisted that our 12.5 percent rate was "just one of a number of factors" that  enticed these companies here. 

We now know that this is horse manure. 

What has now been revealed is that some of the biggest foreign companies in Ireland were paying only a tiny fraction of the 12.5 percent rate, and that the real reason so many of them have come here is because we help them to minimize their tax down to virtually nothing.  Like any other tax haven. 

Rather than the tax haven label, a better description of Ireland is the one used by a leading U.K. tax expert last week when he characterized us as "a doormat state."  This is a state where foreign companies can wipe their feet of enormous tax obligations in return for a small fee.

Fearful of the fallout from what has emerged at the hearings in the U.S., Kenny and the Minister for Finance Michael Noonan were working overtime last week trying to deny the undeniable. 

Kenny was making statements on our tax regime in that forceful way he uses when he's under pressure, a tone that sounds almost like a threat. 

"Ireland is not a tax haven.  Our corporate tax rate on taxable profits is 12.5 percent and there are no exceptions to that.   We do not do special tax rate deals with companies,” he said.  And there was a lot more of this.

So if Kenny is saying the rate is 12.5 percent and there are no exceptions, and Apple is saying that they pay only one or two percent, surely someone must be lying?  Well, no.

Notice those two little words Enda used -- "taxable profits."  What that means is that tax is not charged on all account profits, just on taxable profits, the amount of profit left after all kinds of concessions, deductions and allowances. 

So you can have a headline corporation tax rate of 12.5 percent but you can end up paying almost nothing if you are allowed to make lots of these deductions.   And that is what Ireland has been doing.  

When we are encouraging companies like Google, Apple, Facebook, Twitter and all the rest of them to come here we explain to them how to work the system.  We may even tailor the system for them.