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


Kenny can claim in that outraged and aggrieved tone he uses that Ireland's rate is 12.5 percent and he is not telling lies.  But there's a lot more to our tax system for foreign companies than just the headline rate.  

That's just for starters.   Before we even get to the point of how foreign companies reduce their tax bills in Ireland, there are many other ways they can work the anomalies and contradictions between the tax codes in different countries to minimize their liability.  

Some of these are so basic and blatant they are almost unbelievable.  For example, the U.S. code says that companies must pay tax wherever they are incorporated. 

But the Irish code says that companies must pay tax wherever they are managed and controlled. We
learned last week that this has allowed a good deal of Apple's business to operate in a vacuum between the two codes and end up paying nothing.  

Typically, these big, high tech companies break up their business into smaller companies which separately do manufacturing, marketing, sales, customer service and other functions, and these companies may be in different countries with different tax codes.  The intellectual property rights will always be in a separate company.  

If the intellectual property rights are held in a low tax country like Ireland, the huge profits made elsewhere on products based on the intellectual property can be minimized by charging a great deal for these rights.  

Or if sales and customer service companies in Ireland are producing high profits, they can be minimized by charging the Irish arm a high rate for other aspects of the business based in another country.  

This is called transfer pricing, and it's a basic principle of the tax manipulation carried out by these big multi-national corporations with their armies of lawyers and tax experts.  Some of it is legitimate, but it is wide open to manipulation.    

That is the way it's done at its simplest.  But the same principle is used in much more complex structures across the international business of most of the world's biggest multinationals, including those with operations in Ireland. 

The scale of what is going on -- and the amount of tax being avoided -- is mind blowing. What we learned from the hearing in Congress last week was that Apple had paid little or no tax on $74 billion in foreign sales of its products over the past four years, largely because of the way it can structure business through Ireland.

One of its Irish companies, Apple Operations International, has a brass plate here and nothing else; it received $30 billion in income between 2009 and 2011.  

That a company like Apple which promotes an image of integrity and responsibility behaves in such a way is shameful.  That a country like Ireland facilitates this behavior is also shameful, even it means a few thousand jobs here.

And from Ireland's perspective, of course, the jobs are the primary concern, not just in Apple but in dozens of other foreign companies here. There are now around 150,000 jobs involved in multinationals located here; there used to be over 200,000.  

The jobs are so important to us that they have made us accomplices in this international tax avoidance scam by multi-nationals, the majority of which originally are American.   

One argument is that if we didn't do it the jobs would simply go elsewhere, because other countries are playing this game as well.  

And another argument is that the Americans have only themselves to blame for their failure to collect tax revenue that rightly should be paid in the U.S., where many of these high tech businesses began and were developed.   

The American tax code is such that as long as these companies keep their profits overseas they don't have to pay U.S. tax on them.  The result is that around $1.5 trillion in retained profits is now held overseas by U.S. companies, money that could be creating jobs back in the U.S., and the tax on which could be easing the deficit problem in the U.S. 

So why does the U.S. not do something about it?  Ask the Republicans in Congress. 

Here in Ireland, what this has also exposed is the limitation of our decades old policy of attracting FDI (Foreign Direct Investment) here by all kinds of incentives.   We are hopelessly dependent on the jobs provided by these multinationals who set up here and who can up sticks and take off elsewhere if we upset them by charging them too much tax. 

Why can't we develop more home grown industry to provide jobs?  We manage it in some areas, like the agri-food sector.  We have small software companies which are impressive.   But overall we depend on outsiders to come here and provide jobs for us. 

We pretend they come here because we're so bright and well educated and so damn likable (well, we're Irish!).