Ireland is not Switzerland nor the Cayman Islands, but the European nation has often provided tax loopholes that allow companies like Apple Inc. (NASDAQ:AAPL) to avoid paying the taxes it owes, not dissimilar to the emerald isle’s most famous tax dodger, Bono.
Apple: Ireland will no longer allow companies to be “stateless”
Following years of international pressure, Ireland’s finance minister, Michael Noonan, said on Tuesday that he would put forth legislation that would prohibit Irish-registered companies from remaining “stateless” when it comes to tax residency.
“Let me be crystal clear, Ireland wants to be part of the solution to this global tax challenge, not part of the problem,” he told parliament in his budget speech. “I want Ireland to play fair – as we always have done – and I want Ireland to play to win.”
Ireland was the target of a U.S. Senate committee this year who determined that the nation is acting as a conduit for Apple Inc. (NASDAQ:AAPL)’s earnings, which allow it to avoid large tax payments worldwide. Essentially, Ireland allows Apple Inc. (NASDAQ:AAPL) to pay a corporation tax of less than 2 percent, whereas the global average is 12.5 percent.
Apple Inc. (NASDAQ:AAPL): Multinationals may use “Double Irish”
While Ireland moves to close the loophole that allows companies to remain “stateless,” U.S. multinationals will still be free to use the most common tax avoidance technique in the country, the “Double Irish.”
The “Double Irish” allows companies like Apple Inc. (NASDAQ:AAPL) to exploit differences between the U.S. and Irish tax codes to move profits to low tax jurisdictions as needed. According to Senators John McCain and Carl Levin, Ireland is a “tax haven” which allowed Apple to save paying U.S. tax on $44 billion in offshore income.
Ireland, however, is likely to remain a linchpin in the tax-planning strategies of U.S. multinationals. Its move against “stateless” companies will not prevent multinationals engaging in the most common tax avoidance technique deployed in the country.
Stateless companies may have to pay 12.5 percent in 2015
Under Irish law, multinational companies can incorporate a company in Ireland, but establish its tax residency in a different low-tax jurisdiction or, in Apple Inc. (NASDAQ:AAPL)’s case, have no tax residency at all.
It is Mr. Noonan’s hope that he can force “stateless” companies incorporated in Ireland to declare a tax residency in another jurisdiction. Companies that do not comply and wish to remain “stateless” will simply be forced to pay 12.5 percent corporation tax beginning in 2015.
Mr Noonan plans to force “stateless” companies incorporated in Ireland to declare a tax residency in another jurisdiction or become liable for Ireland’s 12.5 per cent corporate tax rate in 2015.
“The use of so-called stateless companies, which are incorporated in Ireland but not tax resident anywhere was a bridge too far for the Irish authorities,” said Joe Tynan, PwC tax adviser.
Apple Inc. (NASDAQ:AAPL): Ireland has pledged European cooperation
“I think they took the view that if you can cut off the diseased limb you can continue to remain competitive in tax. Ireland will not jump ahead on its own and outlaw the Double Irish,” he said.
And why would they? While Ireland has pledged European cooperation to close corporate tax loopholes, they have zero interest in doing so if the nation is not prodded.