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Ireland Defends Attractive Tax Rates Even Before Apple Tax Breaks, Ireland’s Policy Had Its Critics
(about 9 hours later)
As Apple faced criticism in Washington for not paying more in taxes, Ireland defended its low rates that made it easy for multinational corporations to do business there, instead blaming “loopholes” in other European countries for enabling companies like Apple to avoid taxation. DUBLIN — The secrets of how Apple avoided billions of dollars taxes lie in a low-slung building of glass and brick in the hills of County Cork.
Deputy Prime Minister Eamon Gilmore of Ireland told reporters in Brussels on Tuesday that his government supported efforts to close “loopholes” in corporate taxation, but said these did not stem from Irish taxation policy. There, in the Hollyhill Industrial Estate and elsewhere in Ireland, Apple employs a mere 4 percent of its global work force. But there, too, Apple recorded a staggering 65 percent of its worldwide income — $26 billion last year — enabling the company, according to Senate investigators, to markedly reduce its tax bill in the United States and the rest of the world.
“They’re issues that arise from the taxation system in other jurisdictions, and that’s an issue that has to be addressed first of all in those jurisdictions, and secondly, insofar as there is an international dimension to this, it needs to be tackled by having robust international agreements, and Ireland very much is in favor of that,” he said. Such arrangements are not uncommon in Ireland, where for years authorities have not only tolerated but encouraged multinational companies like Google, Facebook, Pfizer, Johnson & Johnson and Citigroup to set up shop and provide good jobs, in return for helping those companies pay less tax around the world.
Prime Minister David Cameron of Britain has said corporate taxes will be a main focus of the Group of 8 meeting that he is scheduled to convene next month at Lough Erne in Northern Ireland. But on Tuesday, as Timothy D. Cook, Apple’s chief executive, found himself on Capitol Hill being questioned about Apple’s tax practices, Ireland came under sharp criticism for its attractiveness as a pied-à-terre for American companies doing business in Europe. At the eye of that storm: a special corporate tax rate of only 2 percent that Senate investigators say Apple worked out with Irish tax authorities.
“We need a truly global solution,'’ Mr. Cameron wrote in a letter to Herman Van Rompuy, president of the European Council, in April. Carl Levin, the Michigan senator who heads the Senate Permanent Subcommittee on Investigations, said Apple was “exploiting an absurdity” by using three Irish subsidiaries to legally avoid taxes.
“As I am sure you will agree, the path to reform starts with the basic recognition that current global tax rules do not reflect the modern and globalized economy that our citizens live and trade in.” The United States Senate is hardly Ireland’s only critic on tax matters. Britain, France and other European Union countries have long been annoyed by Irish policies. During hearings in the British Parliament last week, Margaret Hodge, a member of the opposition Labour Party and chairwoman of the Public Accounts Committee, which oversees taxation, upbraided Matt Brittin, Google’s vice president for North and Central Europe, that the company’s tax practices were “devious, calculated and, in my view, unethical.”
In February, at a meeting of the Group of 20 in Moscow, the governments of Britain, France and Germany pledged to work together to update international tax guidelines for the Internet era, in an effort to collect more tax revenue from foreign companies. Even before the Senate subcommittee invited Mr. Cook to testify, the British prime minister, David Cameron, declared that the topic would be a focus of the meeting of the Group of 8 richest countries he plans to convene next month at Lough Erne in Northern Ireland.
“Globalization requires rules,” Finance Minister Wolfgang Schäuble of Germany told reporters at the time. “Multinational companies should not have the possibility of using globalization as a means to exploit tax loopholes.'’ “We need a truly global solution,” Mr. Cameron wrote in a letter to Herman Van Rompuy, president of the European Council, in April. “As I am sure you will agree, the path to reform starts with the basic recognition that current global tax rules do not reflect the modern and globalized economy that our citizens live and trade in.”
Ireland has a long tradition of luring American companies with tax incentives. In 1959, it created a low-tax business development zone around Shannon Airport in western Ireland, which was used at the time as a refueling stop for trans-Atlantic jetliners. Ireland, with an economy that ranks 47th in the world, is not a member of the Group of 8.
The country’s attractiveness as a pied-à-terre for American companies doing business in Europe grew after Ireland joined the European Economic Community, the precursor to the European Union, in 1973. Hundreds of American technology companies set up their European headquarters in Ireland in subsequent decades, taking advantage of an English-speaking work force and low taxes. Ireland’s deputy prime minister, Eamon Gilmore, on Tuesday disputed the Senate report’s contention that Apple paid a special rate, saying “Ireland doesn’t negotiate special tax rate deals with any companies.” He said that if Apple was not paying its fair share elsewhere in Europe, the fault lay in “loopholes” in other European countries that make it too easy for companies to avoid taxation.
Under European Union law, companies based in one European country are permitted to do business across the 27-nation bloc, and Internet companies, in particular, have taken advantage of that rule to book their European revenue in the country offering the greatest tax benefits; for many, that is Ireland. “That’s an issue that has to be addressed first of all in those jurisdictions,” Mr. Gilmore told reporters in Brussels.
Ireland’s corporate tax rate is 12.5 percent, less than half the level in many larger European countries. American companies with their European headquarters in Ireland often pay considerably less than this on their European earnings because of accounting techniques that permit them to shift revenue to subsidiaries in offshore tax havens — as Apple has been accused of doing in a report prepared by Congressional investigators. The charge by the Senate subcommittee that Apple avoided paying $44 billion in taxes in the United States by keeping the bulk of its $102 billion cash hoard offshore has struck a nerve here in a recession-racked country where unemployment is 15 percent and the government is looking for ways to repay an 80 billion euro bailout, now equivalent to $103 billion, that it received from the European Union and the International Monetary Fund in 2010.
“Back in the 1970s and ‘80s, when Ireland was a poor state desperately trying to attract investment, tax was a weapon that others weren’t using,” said Richard Murphy, founder of the Tax Justice Network, a group that campaigns against tax havens. “So Ireland developed a twofold strategy: low rates and not too many questions. It became the conduit state of choice.” “There is something wrong with this picture — the revenues of these companies keep increasing while our workers are getting crushed,” said Peter Mathews, a chartered accountant who is also a member of the Irish Parliament for the governing Fine Gael party. “Apple’s cash pile is about the size of our national income. Why not have them pay a 4 percent levy to contribute to our national recovery?”
While Ireland misses out on some tax revenue, analysts say its economy more than makes up for this in other ways, including the tens of thousands of jobs that American technology companies have created there – and the income taxes that well-paid programmers and executives contribute to the Irish treasury. Apple alone employs more than 4,000 workers in Ireland, while Google employs more than 2,500 there. Apple, which set up its first overseas headquarters in 1980 in Cork to assemble Macintosh computers, has a long history with the Irish. Its 4,000 workers — the largest Apple labor force in Europe — is significant in a country of only 4.6 million people. Apple’s employees assemble iMacs and Mac Pros and are also engaged in research, customer service and other support functions. “Our tax system may be lax, but in exchange we get jobs and more foreign investment,” said Stephen Kinsella, an economist at the University of Limerick who contributes to the influential Irish Economy blog. “No doubt about it, the benefits outweigh the costs.”
“Ireland compensates for the revenue shortfall due to its attractive tax policies with direct and indirect gains to its economy,” the French Federation of Telecoms said in a report last month. Members of the group provide Internet services that compete with Google, Apple and other companies, but complain that they are subject to higher taxes because they are based in France and have to pay French taxes. Irish politicians through the years have stood behind the country’s official 12.5 percent corporate tax rate, so much so that three years ago when the previous government negotiated the international bailout, it refused to budge when European negotiators wanted to make a higher tax rate a condition for a deal.
To level the playing field, the report says, American Internet companies would have had to pay around 800 million euros worth of corporate tax, and 400 million to 700 million euros worth of value-added tax in 2011 in France — more than 20 times the actual amount they handed over to the French fiscal authorities. Government figures show that in 2010 the effective rate on the gross income of companies here was only 6 percent, and economists say that in some cases — as with Apple — it can go lower than that.That stands in contrast to the effective corporate tax rate in other countries: 29 percent in the United States, 22 percent in Britain, 27 percent for France and 24 percent for Germany.
Discrepancies like this have given rise to growing frustration among European policy makers at a time when governments are cutting budgets and struggling to make ends meet. More than 600 American companies have set up in Ireland, employing 100,000 Irish workers and enjoying the advantages of an English-speaking work force and low taxes.
During hearings in the British Parliament last week, Margaret Hodge, chairwoman of the Public Accounts Committee, told Matt Brittin, Google vice president for North and Central Europe, that the company’s tax practices were “devious, calculated and, in my view, unethical.” Representatives of several American companies, including Amazon and Starbucks, have, like Google and Apple, insisted that they comply with the law.
“You are a company that says you do no evil,” she added, in a reference to the company’s unofficial slogan, “don’t be evil.” “And I think that you do do evil.” “Apple does not use tax gimmicks,” Mr. Cook told the Senate subcommittee Tuesday.
Representatives of several other American companies, including Amazon and Starbucks, have also been hauled before the committee. They have insisted that they comply with the law. Under European Union law, companies based in one European country are permitted to do business across the 27-nation bloc, and Internet companies, in particular, use that rule to book their European revenue in the country offering the greatest tax benefits. For many, that is Ireland.
Like Apple, these companies use complicated accounting strategies to record much of their European revenue in Ireland or another low-tax jurisdiction, Luxembourg. As a result, Google paid a mere £6 million, or about $10 million, in corporate taxes in Britain last year, despite generating more than $4 billion in sales there. But if Ireland were to change its approach to taxation, other low-tax European countries like Luxembourg and Slovakia would simply take its place.
In the parliamentary hearings, Mr. Brittin said it was legitimate for the company to pay low taxes in Britain and other European countries because Google’s profit derived largely from innovation that took place in California, where the company had its headquarters. European advertising sales are booked in Ireland; the company pays taxes in Britain only on promotional activities that are carried out by its British staff and reimbursed by the Irish unit. “Back in the 1970s and ’80s, when Ireland was a poor state desperately trying to attract investment, tax was a weapon that others weren’t using,” said Richard Murphy, founder of the Tax Justice Network, a group in London that campaigns against tax havens. “So Ireland developed a twofold strategy: low rates and not too many questions. It became the conduit state of choice.”
Even critics like Ms. Hodge acknowledge that practices like these were probably legal under existing international agreements, which generally stipulated that business should be taxed at the place where a transaction was recorded, not where the customer was located. But these principles predate the Internet, which has made it easier for multinational companies to surmount physical borders.

Landon Thomas Jr. reported from Dublin and Eric Pfanner from Serraval, France.