The Irish government is reportedly examining options for phasing out the so-called “Double Irish” taxation arrangement that has allowed global tech companies, notably Apple, to funnel profits through the country and avoid large tax bills in their resident states.
Dublin financial newspaper The Sunday Business Post reports officials are likely to bow to mounting international pressure to tighten Ireland’s tax arrangements, which have led to the country increasingly being labelled a tax haven.
The report (behind a paywall) also outlines how Apple struck a deal with the Irish government on its tax arrangements in 1990, along with about five other companies.
The Double Irish arrangement involves a multinational having two linked subsidiaries that benefit from tax concessions intended to encourage investment and job creation in Ireland.
The schemes were first conceived in the early 1990s. Apple, Google, Microsoft and Facebook all have Irish subsidiaries which are suspected of having helped them reduce their combined tax liabilities by billions of dollars over the years.
The schemes are entirely legal but have been coming under increasing scrutiny in recent weeks after a US Senate subcommittee’s investigation into Apple’s tax arrangements.
The report says the deals with Apple and other companies were “structured to allow the multinational corporations effectively to make royalty payments to themselves and claim tax relief”:
As part of the accord, Apple moved the headquarters of its main Irish operating company to an offshore tax haven, believed to be Bermuda at the time. All intellectual property was moved to this new company, with the Irish operation remaining a branch of this parent company.
The Irish branch paid a substantial royalty to the parent for use of the intellectual property, a move which allowed it to substantially reduce its tax bill over a long period.
Crucially, the Irish authorities allowed Apple to treat the offshore parent and the Irish branch as one and the same entity, which meant that Apple escaped paying capital gains tax on the initial transfer of the intellectual property.
The tax arrangements of global technology companies have been under increasing scrutiny. Apple chief executive Tim Cook appeared before a US Senate subcommittee in Washington this month to defend the company’s tax structure, arguing that the company not only paid all the tax it was required to pay but that it also followed “the spirit” of the various tax laws.
But the issue has been drawing growing political attention in Europe amidst the turmoil in various countries’ economic positions following the GFC. Also this month it emerged that Google employees in Britain had no power to close a sale – that could only be done through staff in Ireland.
Overnight at a speaking event in Britain Google chairman Eric Schmidt called for a “reasonable debate” on taxation regimes. “The international tax regime has been around for a long time. If I were running the international tax regime, it wouldn’t be operating this way,” he said. “We organise ourselves to basically maximise revenue, maximise cash, maximise the things we do so we can invest in services which to you are largely free.
The Australian government announced in its annual budget this month that it would move to close certain loopholes in its corporate tax legislation surrounding the use of offshore subsidiaries. The measures are projected to haul in an extra $4 billion in federal revenue.
The new tax commissioner, Chris Jordan, has signalled his intent to increase scrutiny of companies using complex tax minimisation arrangements and last year the assistant treasurer David Bradbury took the unusual step of naming Apple and Google while talking about multinationals’ tax arrangements.
The Sunday Business Post says it “appears likely that the (Irish) government will bow to the growing anger” over the Double Irish arrangement and that officials are “examining options” to phase it out.