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The Knives are out for Irish Tax Dodges

While we are all focussed on the 12.5%corporate tax rate, the real objective is to end the cosy offshore loopholes.  As reported in BNN ” Ireland: Rotting republic of greed? “ by Andrew Bell.

“..But Marshall Auerback, strategist at Madison Street Partners, LLC, a Denver based fund management group and a Senior Fellow of the Roosevelt Institute, says the tax is a red herring or rather a smokescreen. He says Dublin will make other tax concessions that will send the beloved multinationals packing.

“Forget about Ireland’s 12.5% corporate tax regime,” Auerback says in an email. “The real meat is in the offshore loopholes, particularly involving intellectual property.”

Bloomberg reported last month that Google cut its taxes by $3.1 billion US in the last three years “using a technique that moves most of its foreign profits through Ireland and the Netherlands to Bermuda. Google’s income shifting – involving strategies known to lawyers as the ‘Double Irish’ and the ‘Dutch Sandwich’ – helped reduce its overseas tax rate to 2.4 percent.”

Facebook, the world’s biggest social network, is preparing a similar structure to Google’s that will send earnings from Ireland to the Cayman Islands, according to Bloomberg.

Auerback says that “Ireland is looking at the EU, the IMF, and the U.K. for bailout money. Each time a U.K. company defects to Ireland, it’s a political slap in the face. America dearly needs its tax take. Germany has made no secret of its view on Ireland’s fiscal set-up.

”I suspect there’ll be much discussion about ‘loopholes’ as Ireland weighs up its options. Without these loopholes, Dublin looks a lot less attractive.

“So, Ireland gets to keep its 12.5% regime which it can sell to voters as a victory. But that’s irrelevant. The big corporates are there for the offshore perks, which will be removed, thus eliminating their desire/need to have offices in Dublin.”

This theme is also picked up in our home grown Finfacts ” Ireland’s corporation tax debate misses the point” By Dr. Chris van Egeraat, Lecturer Economic Geography, National University of Ireland, Maynooth

“We must realise that Ireland’s 12.5% corporation tax rate is only one aspect of Ireland’s constellation of incentives to attract foreign direct investments. Other important pillars include, amongst others, recent legislation for holding companies, taxation of patent royalties, double taxation agreements and the (US) legislation for cost sharing arrangements.

All these elements together have made Ireland an attractive location for foreign “headquarters”, notably for “managing” intellectual property (IP). In addition to their traditional involvement in manufacturing and services operations, many multinationals such as Pfizer and Google have established separate headquarter subsidiaries in Ireland for the management of IP and other intra-firm financial services.

The US parents have licensed large shares of their IP to holding companies in Ireland. Although, in some cases, the royalty income is again re-allocated to genuine tax havens such as Bermuda, the Irish subsidiaries do pay 12.5% over some of the profits. Because we are talking about billions of royalty income, this is a substantial source of revenue for a small country like Ireland. One example of such carefully designed corporate structures was recently outlined in the context of Google.

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