Monday, October 25, 2010

Ireland's 12.5% tax rate - read the small print

Following our blog on Google's 2.4 percent tax rate, we'd like to highlight one other aspect of this story, which the Irish Times, nicely repackaging that Bloomberg article, picked up on. People routinely talk about Ireland's 12.5% corporation tax rate as the big lure for foreign funds and corporations. But as is so often the case, it is not the headline tax rate, but the deliberate loopholes and exemptions, that matter here.
The Dublin subsidiary was credited by Google with 88 per cent of its $12.5 billion in non-US sales in 2009 – a figure that substantially dwarfs the €18.3 million that Google paid in taxes in Ireland last year.
. . .
Google Ireland reported pretax income of less than 1 per cent of sales in 2008. This was largely because it paid $5.4 billion in royalties to Google Ireland Holdings which, despite its formation in Ireland and Irish-sounding name, has an “effective centre of management” in Bermuda. The royalties take a little detour along the way to the Netherlands and an employee-free company called Google Netherlands Holdings to avoid Irish withholding taxes: this little stopover is what gives rise to the “Dutch Sandwich” nickname. The ultimate parent is Google Inc.

We are used to the idea that US companies might want to set up shop in Ireland to bask in the glow of a 12.5 per cent corporate tax rate. For some companies, however, 12.5 per cent is still too much when there are tax-free destinations such as Bermuda to stash your cash."
Just something to remember. And we are pleased to see the Irish times noting that:
While it is sunny Bermuda that is generally dubbed the “tax haven” in this international three-way, from the US perspective, both Ireland and the Netherlands are also worthy of the title.
Indeed. And on the subject of Ireland and its role in the ongoing international race of tax competition, take a look at Sheila Killian's 2007 paper exploring this issue. As she notes:
"The first round of tax competition was already harmful; the second round could bring new levels of damage, particularly to developing countries."

1 Comments:

Anonymous Anonymous said...

Surely there is a whistleblower case here just based on SEC filings and a little tax investigation? The numbers seem compelling even allowing for the potential IRS haircut for information gleaned from public media? And since Google'planning is a clone of MicroSoft's isn't this a whistleblower's dream situation?

12:22 pm  

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