Tech giants like Apple, Google and Microsoft have been sheltering billions on the emerald isle and although tax reform seems to be in the works, an additional loophole would appear to ensure that the luck of the Irish for attracting hi-tech companies to its shores, is still far from running out
Tech giants like Apple, Google and Microsoft have been sheltering billions on the emerald isle and although tax reform seems to be in the works, an additional loophole would appear to ensure that the luck of the Irish for attracting hi-tech companies to its shores, is still far from running out.
Regulating the show
The Fighting Irish were all bluster and no punch on Tuesday as Finance Minister Michael Noonan threatened tax reform that would make it compulsory for companies registered in the Celtic tax haven to maintain an additional tax domicile somewhere else in the world.
Critics of Noonan point to the fact that even should such legislation come into effect, there’s still an additional Irish tax loophole that would allow companies to list other tax havens (such as the 0% taxation country of Bermuda) as being their foreign tax domicile, leaving the proposed legislative reform about as effective as the luck-inducing qualities of a three leaf clover.
The whole hullabaloo began this past May when a US senate investigation committee revealed that Apple Inc. had managed to dodge over $40B in taxes by sheltering massive portions of its income in satellite entities overseas. A brow raising 65% ($26B) of apple income was enjoying a marginal 2% tax rate by being attached to three apple entities residing in the otherwise unassuming county of Cork, Ireland.
The reveal sparked the ire of US lawmakers (who also serve as foreign US investment influencers) and in turn ignited an A-class production of displayed outrage by Irish leaders. Their performance was truly inspiring, making it seem as if it was all news to them that the transformation of their mostly rural country into the European summer home for the likes of Apple, Google and Microsoft, turned out to be the direct result of an irresistible deregulated business environment. And here I was thinking it was all about the rain.
One might ask why Ireland should be afraid of the label ‘tax haven’, as the word haven generally cannotes a positive; as in offering protection from oppressive external forces? The answer lies in the double threat of foreign entities levying added regulatory restrictions on their local industry looking to conduct business with Ireland, as well as the fear that large corporates might be compelled to pull up stakes from their Irish homesteads if they suspect their home governments might go after them with any number of aggressive tactics like additional scrutiny, punishing penalties or new restrictive legislation – all to disincentivize an Irish presence.
However, let’s not allow the traditional naivety of a typical audience to affect our geeky shrewdness. Despite all the political grandstanding being lapped up by the mainstream media and the general viewing public (as it was intended to be) there’s no way that; Ireland would give up its tech-base advantage, multi-nationals would give up their tax haven, and lawmakers, their lobbyist sponsored perks – simply because one US senate hearing had managed to garner a bunch of sensationalist press. All three players merely need to appease the easily aroused anger of the masses long enough until the next attention grabbing event keeps them from seeing one loophole replace the other.
The ‘Double Irish’ loophole, as it has affectionately come to be called, is something tech giants like Google and Microsoft have been relying upon to cut their tax rates to single digit proportions. The process involves the funneling of sales through their Dublin subsidiaries and then paying massive tax deductible royalties to their entities in tax free jurisdictions like Bermuda, essentially running a legal version of a money laundering operation.
Let it rub off
Sounds terribly cynical of these companies, I know. But looking at it objectively, is it really such a bad thing? The fact that special interest groups, supposedly acting in the interest of the people, have manage to paint an ugly picture of a privileged corporate class getting to play by their own set of rules, doesn’t mean that such a thing is not also in the interest of the little guy as well.
How about we let the numbers do the talking instead of the activist with a blow horn. Ireland’s fostering of an attractive corporate environment has brought over 600 American corporations alone to the country, employing a collective 100K+ workers. In a country of 4.6M people, we’re talking about a foreign corporate investment being responsible for more than 2% of the county’s overall population – not labor force, population. That’s a ridiculous number, and it doesn’t even begin to take into account all the residual economic benefits that cascade off of such a reality; small service providers, restaurants, shopping, entertainment – a veritable mini economy springing forth 600 times over.
Instead of US and European lawmakers looking to play up to a temporary and easily swayed wave of public opinion, they should be looking into ways of mimicking the strategies that have proven so successful in attracting the wandering eye of promiscuous multinationals. To be clear, I’m not arguing for the abolition of all taxes but a growth oriented regulatory strategy should always be the broad and overarching aim of any free and healthy economy, with the occasional restriction coming into play only to uphold the protection of such freedom.
Or, you can try regulating your way to a boisterous economy…good luck with that.
Photo Credit: Shutterstock / Digital Clover