Ireland faces something of a dilemma of such a magnitude that the famous Hobson himself might stand back muttering, “I don’t fancy yours much!”
Now, among the swathe of cuts that have to be made to try to wrestle our beleaguered nation from the pit of debt must be the consideration that our world famous corporate tax rate has to rise. All government ministers, bless their resilient hides, have said that it is a “red line” issue and is not for discussion. This may be simply the protestations of a debtor asking the bailiffs not to take the good china, but still, the protests have been vociferous.
However, as David McWilliams has pointed out on several occasions, whether it is the European Commission, or the ECB or even the IMF, all are likely to consider 12.5% of something as a damn sight better than 50% of nothing, which is what would likely happen if the tax rate went to something near competitive with the rest of Europe.
The reason for this, I would argue, is that one of the chief reasons that large multinationals, of any ilk, site their businesses, or their headquarters here is not the 12.5% rate of corporate tax, but the fact that they can further use tax laws here and elsewhere in the EU to their advantage and avoid significant taxation in several jurisdictions.
It is that, as much as anything else, which has seen many large technology companies site themselves here, as it allows them to direct their European income in such a way as to pay the least amount of tax possible, while still staying on the right side of the law, and this is a critical point to make here, there is nothing at all illegal going on.
This was brought to our attention recently when Bloomberg gave the specifics of what Google has managed to do, according to its own regulatory filings.
Google Incorporated in Mountain View California licenses its intellectual property to a foreign subsidiary, Google Ireland Holdings, which allows it to reduce its taxable income at home. This is an Irish company, Bloomberg says, but its management centre is in Bermuda and this allows it to avoid Irish taxation.
A further subsidiary is Google Ireland Ltd, which employs some 2,000 people in Dublin but, reports Bloomberg, was responsible for 88% of Google’s international sales in 2008, despite making a pre tax profit of less than 1% of sales, due to the high intellectual property licensing costs from Google Inc.
So, Google Ireland Ltd makes payments to Google Netherlands Holdings BV, a Dutch company that employs no one. This also avoids an Irish “withholding tax”, says Bloomberg, and from there it goes back to Mountain View and Google Inc.
Bloomberg reckons that Google has cut $3 billion from its tax bill in 2007 using this entirely legal method.
Now, in this context, one can be sure that other multinationals here, whether in IT or not, are using similar methods, as all will have high priced tax and legal consultants to ferret out such possibilities and exploit them to their fullest.
TheRegister.co.uk is reporting today that HP, Intel, Microsoft and Google have warned that Ireland’s economic recovery is dependent upon retaining the corporate tax rate, thus ensuring Ireland’s competitiveness.
“Any increase in corporation tax will have a damaging impact on our ability to win and retain investment in Ireland,” said Lionel Alexander, VP of HP manufacturing and president of the American Chamber of Commerce in Ireland.
“The simple truth is that Ireland’s corporate tax rate is not the most competitive in the world.
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