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"Double Irish" Tax Loophole Used By US Companies To Be Closed

Posted by Soulskill on from the luck-of-the-not-irish dept.

An anonymous reader writes: The Irish Finance Minister announced on Tuesday that Ireland will no longer allow companies to register in Ireland unless the companies are also tax resident. This will effectively close off the corporate tax avoidance scheme known as the "Double Irish" used by the likes of Google, Apple, and Facebook to route their earnings through their Irish holdings in order to garner an effective tax rate of, as in Google FY2013, 0.16%. Ireland's new policy will take effect in 2015 for new companies. "For existing companies, there will be provision for a transition period until the end of 2020."

44 of 259 comments (clear)

  1. Transition period? by Anonymous Coward · · Score: 2, Interesting

    > "For existing companies, there will be provision for a transition period until the end of 2020

    Why? Isn't that just leaving the loophole open but closing?

    1. Re:Transition period? by alexander_686 · · Score: 5, Informative

      For legitimate business this is true. This was not for legitimate business.

      Each country has it's own tax laws as to when and what revenue they will tax. Because each country makes their own they don't dovetail like you think they should. The US has some crazy rules and Ireland had a gap. The results was that some income from intangible property (patents and trademarks mostly) fell into a gap between Ireland and US tax laws so it would never be taxed.

    2. Re:Transition period? by Sun · · Score: 3, Insightful

      As far as Ireland is concerned, that is exactly it.

      Google, Facebook and Microsoft (to name three, I'm fairly sure there are more) hold huge development and support centers in Ireland. While corporate tax in Ireland is low, income tax is fairly high. The Ireland government isn't losing from this deal.

      Shachar

    3. Re:Transition period? by Anonymous Coward · · Score: 3, Insightful

      Either you haven't understood how society works, or how the Double Irish scheme works... or maybe even both.

    4. Re: Transition period? by Anonymous Coward · · Score: 4, Insightful

      I don't think he's listening. His eyes and ears are covered by the American mythology of the invisible hand.

    5. Re:Transition period? by dbIII · · Score: 3, Insightful

      You again? I suggest you look up the topic in question and you'll find out that Ireland gets little or no benefit from that specific tax loophole.
      I really don't understand what you are trying to do with your "all doomed if anything changes" attitude on a variety of topics especially when it defies what everyone can observe within a minute of background reading.

    6. Re: Transition period? by Anonymous Coward · · Score: 2, Informative

      Yes, but his informal and inaccurate observation with very limited scope was elevated to universal divine capital-T Truth by Americans.

    7. Re:Transition period? by DrXym · · Score: 4, Informative

      They're not parking their billions there. They're funnelling money through Irish registered companies which are domiciled in places like the Cayman islands. Ireland might make some money but it doesn't get much out of it. Ireland is changing the rules so that Irish registered companies must be domiciled in Ireland and therefore liable to Irish corporate taxes.

  2. Of course they're giving a 6-year transition by BarbaraHudson · · Score: 2

    Of course they're giving a 6-year transition period. It was the most they could get away with, after the pressure from other countries to either do something or they would unilaterally close these loopholes a lot quicker.

    --
    "Transparent" is a shit show that trades on every stereotype going. A man in drag is NOT a transsexual.
    1. Re:Of course they're giving a 6-year transition by ArcadeMan · · Score: 3, Funny

      Nothing wrong with going pro.

      --
      Get free satoshi (Bitcoin) and Dogecoins
    2. Re:Of course they're giving a 6-year transition by ClickOnThis · · Score: 4, Interesting

      That's the Scottish. Scottish men wear skirts like cowboys wear jeans.

      Correct. But Irish nationalists adopted the kilt in the late 19th and early 20th centuries.

      --
      If it weren't for deadlines, nothing would be late.
    3. Re:Of course they're giving a 6-year transition by Anonymous Coward · · Score: 2, Funny

      That's the Scottish. Scottish men wear skirts like cowboys wear jeans.

      Do ye know why it's called a Kilt?

      Because I kilt the last man who called it a skirt.

    4. Re:Of course they're giving a 6-year transition by Another,+completely · · Score: 2

      Taxes should always be paid where the revenue was generated

      That's an argument for the U.S.A. closing loopholes that allow companies not to pay tax there. Higher taxes in Ireland won't change the amount of tax due in the U.S.A. It may encourage some companies to declare income differently, which may indirectly cause more tax to be paid in the U.S.A., but if you want the taxes paid where the money was earned, don't look at where it was sent; look at what allowed the companies to claim it wasn't domestic income in the first place.

    5. Re:Of course they're giving a 6-year transition by bluefoxlucid · · Score: 2

      From what I understand, if Microsoft sells a software license in Colorado, it's US Income. If Microsoft sells a software license in Japan and it's accounted on the income for Microsoft Corp. in Redmond, it's also US Income.

      To avoid these taxes, Microsoft can set up shop in Dublin as a tax haven. When Microsoft sells a software license in Colorado, it's US Income, taxed before exporting to Dublin. When Microsoft sells a software license in Japan, it's Dublin income.

      It actually seems fair to me. It's the same way we do business with Porsche and Mazda; the only difference is Porsche is a German company, so we're okay with Porsche paying US taxes on Porsche cars sold in the US and not paying US taxes on Porsche cars sold in Japan. Microsoft is seen as a US company, so we get our panties in a knit when Microsoft only pays US taxes on Microsoft products sold in the US.

      --
      Support my political activism on Patreon.
  3. Hi-ho, Hi-ho, by Anonymous Coward · · Score: 5, Insightful

    To a new tax haven we go!

    *whistles*

  4. Why..... by thieh · · Score: 5, Funny

    Why wouldn't people just use the system of "where your customers pay you" for any multinational company to determine "where to tax is owed"? Much simpler and fairer between different nations.

    1. Re:Why..... by Anonymous Coward · · Score: 2, Insightful

      Why wouldn't people just use the system of "where your customers pay you" for any multinational company to determine "where to tax is owed"? Much simpler and fairer between different nations.

      Because they are not trying to be fair.

    2. Re:Why..... by alexander_686 · · Score: 4, Informative

      I will mostly agree on you point. It ignores some of the difficulties of transfer pricing but it is the right principle. The double Irish worked because the US is the only country that does not charge taxes on where the profit is earned, but charges US taxes no matter where it is earned.

    3. Re:Why..... by drfred79 · · Score: 4, Interesting

      A lot of countries do only tax on the revenues from their country. America is one of the few countries that tries to tax globally. That's why companies are leaving America.

    4. Re:Why..... by ShanghaiBill · · Score: 4, Interesting

      the US is the only country that does not charge taxes on where the profit is earned, but charges US taxes no matter where it is earned.

      But the taxes are not owed until the profits are repatriated. So the result of this idiotic policy is that little tax is collected, while companies are given a huge incentive to reinvest their profits outside America.

    5. Re: Why..... by Anonymous Coward · · Score: 2, Informative

      Is not that simple. This is not about the "sales tax" (VAT in EU) which is typically assessed and paid in a defined jurisdiction where the sale occurs.

      This is about much more complicated corporate income tax. "Google" is not a company, but a brand. Under this brand there is a conglomerate of separate companies that are setup under different jurisdictions with different accounting rules.

      Different Google companies ("legal entities" in corporate speak) provide services to each other under internal contracts. Each of these entities have costs. And most have revenues, even if that revenue is "internal" withing the conglomerate. For example, the Google subsidiary in Germany selling ads is charged a cost by the Google legal-entity in US that operates the data-center who physically hosts the ads (this is a simplistic example). There is a whole chapter in economics about Transfer Pricing and there are many laws about it, too (http://en.m.wikipedia.org/wiki/Transfer_pricing) on that topic.

      The background of this issue is that revenue recognition rules and definitions of what exactly is "taxable income" varies across countries (jurisdictions).

      What Google and other companies are doing is simply to optimize their setup of legal entities and the contractual relationships between them in all jurisdictions where they operate in order to maximize tax deductions and lower their overall tax liability. It is nothing illegal, this is NOT tax evasion.

      It is a very good example of application of the Graph Theory: given a set of markets (countries with their tax rules) and relationships between them (free trade agreements, treaties on avoiding double taxation, etc), find the optimal legal setup of legal-entities that would allow access to those markets and maximize the tax deductions (minimize tax liabilities) for the set of entities as a whole (the "company")

      P.S. Many US families do the same thing as Google, at a smaller scale. I personally know families in which the wife does not work and is stay-home mom because is "cheaper" vs. two working parents and kids in day care. This is because two spouses working would put them in a higher taxable income bracket which will also make them receive less or none of some tax deductions. Plus they will have to pay for day care. With the wife staying home, taxable income of just one working spouse is lower, there are higher tax deductions, and no day care costs. Tax evasion? No, simply a personal example of tax optimization.

    6. Re:Why..... by Burdell · · Score: 2

      The biggest issue with that is that most of these taxes are on profit, and profit can be shifted around pretty much at will. For example, Google(Ireland) could buy all the equipment needed for google.com, and "sell" it to Google(US), for an amount that just happens to resemble the profits of Google(US). So, Google(US) has no profit to tax, while Google(Ireland) has much profit (and little tax on it).

      That's one reason some people favor sales/use/value-add taxes instead; it is harder to shift that around (although in the end, it is all shifted to the consumer).

    7. Re:Why..... by Charliemopps · · Score: 4, Interesting

      Which is why there should simply be a flat use tax. You sell anything to anyone, you're paying tax. Period.

      But the government doesn't want this because they use their current nightmare system to manipulate companies into doing their bidding. Hire more people, get a tax break. Lower your carbon footprint, get a tax break. All of it results in a multitude of pet projects by the government that fail, and corporations that eventually don't pay taxes at all. Not to mention that it gives those same companies huge incentives to medal in politics.

      Want to get the money out of politics? Get the government out of money.

    8. Re: Why..... by kenshin33 · · Score: 2

      I personally know families in which the wife does not work and is stay-home mom because is "cheaper" vs. two working parents and kids in day care. This is because two spouses working would put them in a higher taxable income bracket which will also make them receive less or none of some tax deductions. Plus they will have to pay for day care. With the wife staying home, taxable income of just one working spouse is lower, there are higher tax deductions, and no day care costs. Tax evasion? No, simply a personal example of tax optimization.

      Very bad example. even if they're in a higher tax bracket they'l probably still have more money. And I doubt that the reasoning goes like the way you described it. Most of the time it's because daycare is so expensive that the stay at home is the better choice (economically).

    9. Re:Why..... by radarskiy · · Score: 2

      "Much simpler and fairer between different nations."

      1. In almost all cases the company exists in fewer countries than all of their customers. This would require a company not trying to game the system to maintain income tax accounting for vastly more countries.
      2. What does "where your customers pay you" mean for an international purchase? (See the parallel arguments concerning sales tax an interstate commerce.)
      3. Why shouldn't sovereign nations be allowed to have their own laws?

    10. Re:Why..... by Anonymous Coward · · Score: 2

      Because taxes are used for paying for municipal/government protections, services, etc. If they have no physical entity then why should they pay for these things?

      If they have no physical entity in Ireland then they shouldn't fly an Irish flag. They damned well have a physical entity in the US, and are receiving its protections, services, etc. They should be paying taxes there, and I'm not talking 0.16%. I'm hardly saying 30% is fair either, but it's way past time these fucking loopholes get closed up.

    11. Re:Why..... by Lord+Kano · · Score: 4, Insightful

      No. They're not lying. They are telling the truth. They structure their business models to make sure that the money is earned in the least taxable manner.

      It's common sense. A for-profit corporation exists to maximize shareholder value within the confines of the law. To do anything less is a breach of fiduciary responsibilities.

      LK

      --
      "Hi. This is my friend, Jack Shit, and you don't know him." - Lord Kano
    12. Re:Why..... by Marsala · · Score: 3, Interesting

      A lot of countries do only tax on the revenues from their country. America is one of the few countries that tries to tax globally. That's why companies are leaving America.

      There are just so many reasons to leave the USA. National security letter shenanigans would mean that I wouldn't even have any management staff physically in the USA, there would be no staff in the USA to deliver a NSL to. Taxes? I'd probably prefer to hire non-US citizens, it makes banking with foreign banks a lot easier.

      Sell to the US consumer but have no presence in the country.

      But.... you don't have to leave the USA. There aren't really any downsides to being an illegal alien here right now. They have the "right" to taxpayer sponsored health care, education, and welfare programs. You can even score a driver's license and vote in some places, too. Other than getting elected President and smoothing over security clearances (which most of us aren't going to ever do/need anyway), there aren't a whole lot of benefits to remaining classified as an Ugly American any more. I've been half waiting for some smaller country to figure out they can score some easy income by simply offering free citizenship to ex-USAans and a reasonable income tax rate of like, oh, say, 10%.

      Just pay your renunciation tax, open up a new checking account at Bank of Mozambique so you can get paid directly by your company's Irish office, and shine on you crazy diamond. You don't even have to learn to drive on the wrong side of the road or get involved with that Communist metric conspiracy crap, either!

    13. Re:Why..... by chuckugly · · Score: 2

      Taxes on revenues? Because they are not making any profit; that's how it works you see.

    14. Re:Why..... by phantomfive · · Score: 2

      Which is why there should simply be a flat use tax. You sell anything to anyone, you're paying tax. Period. But the government doesn't want this because...

      I don't want it either, primarily because it ends up with poor people paying a higher percentage of their income in tax. You can make adjustments for necessities, like food and gas, but that tends to make it so the middle class is paying the highest percentage of their income in tax. Also........

      ....because they use their current nightmare system to manipulate companies into doing their bidding.

      If you think it's bad now, wait until you have a group of unelected officials determining what items are 'necessities' and should be exempted. There's plenty of room for regulatory capture and manipulation there.

      --
      "First they came for the slanderers and i said nothing."
    15. Re: Why..... by IamTheRealMike · · Score: 2

      This is not about the "sales tax" (VAT in EU) which is typically assessed and paid in a defined jurisdiction where the sale occurs.

      ..... until January. It appears our glorious leaders in the EU have decided that they weren't getting enough VAT because people sell things out of low tax jurisdictions (how dare they), so now VAT on various types of digital products and services e.g. online software sales or e-books get to pay tax based on the jurisdiction of the buyer, not the seller. So if you sell software in the EU now you have no choice, essentially, but to hire an expensive middleman who handles the nightmare of filing VAT returns in every EU state. Plus you need to be able to track exactly where your customers are for tax purposes. Effectively people would get a discount for buying through a proxy so god knows how this will be implemented. Total nightmare. All driven by the desire for ever more tax.

    16. Re:Why..... by kinko · · Score: 2

      That's generally what each country does to the companies operating inside it.

      But here's the problem. Lets say an iPhone costs $400 to make, and sells retail for $1000. One Apple-related company pays $400 to get the phone made in china, and then sells the phone to Apple Ireland. Apple Ireland pays $450 to get the phone, then sells the phone for $995 to Apple Australia or Apple USA or whatever. Australia/USA can tax the profits of the local company, but the local company only made $5 per phone, and then used most of that for local expenses/advertising. Apple Ireland books most of the profit, and at a tax rate far less than other Western countries.

    17. Re:Why..... by alexgieg · · Score: 5, Interesting

      "Shareholder capitalism is the doctrine that companies exist solely to make money for their shareholders. It is frequently contrasted with stakeholder capitalism, which holds that companies exist for the benefit of their customers, workers and communities, not just for ever-fluctuating number of mostly remote and unengaged passive investors who just happen to own stock in them, often without even being aware that they do.

      "The rise of shareholder capitalism in the U.S. is often dated to an influential article in the Journal of Financial Economics in 1976, titled “Theory of the Firm: Managerial Behavior, Agency Costs and Ownership Structure” by Michael C. Jensen and William H. Meckling. They argued that shareholders should demand higher returns from complacent corporate managers. The idea of shareholder value was publicized by a 1981 speech in New York by Jack Welch, who had just taken over General Electric, and by Aflred Rappaport’s 1986 book “Creating Shareholder Value.”

      "The shareholder value movement sought to persuade corporate managers to ignore the interests of all stakeholders like workers, customers and the home country, other than shareholders. Granting CEOs stock options, in addition to salaries, was supposed to align their interests with those of the shareholders.

      "The theory had an obvious problem: Who are the shareholders and what are their interests? Most publicly traded companies have shares that are bought and sold constantly on behalf of millions of passive investors by mutual funds and other intermediates. Some shareholders invest in a company for the long term; many others allow their shares to be bought and sold quickly by computer software programs.

      "Unable to identify what particular shareholders want, CEOs with the encouragement of Wall Street have treated short-term earnings as a reliable proxy for shareholder value. (...)

      "Shareholder value capitalism in the U.S. since the 1980s has even failed in its primary purpose — maximizing the growth in shareholder value. As Roger Martin, dean of the Rotman Business School at the University of Toronto points out in a recent Harvard Business Review article, between 1933 and 1976 shareholders of American companies earned higher returns — 7.6 percent — than they have done in the age of shareholder value from 1977 to 2008 — 5.9 percent a year.

      "For his part, Jack Welch has renounced the idea with which he was long associated. In a March 2009 interview with the Financial Times, the former head of GE said: “Strictly speaking, shareholder value is the dumbest idea in the world.”

      "In the aftermath of the failed 40-year experiment in shareholder capitalism, Americans need not look solely to other democratic nations for models of successful stakeholder capitalism. The U.S. economy between the New Deal and the 1970s was a version of stakeholder capitalism, in which the gains from superior growth were shared with workers, CEOs were moderately paid and the rich engrossed far less of the economy. In reconnecting with America’s native tradition of stakeholder capitalism, American companies can learn from the example of Johnson & Johnson, whose credo was written by Robert Wood Johnson in 1943:

      "We believe our first responsibility is to the doctors, nurses and patients, to mothers and fathers and all others who use our products and services.We are responsible to our employees, the men and women who work with us throughout the world.We are responsible to the countries in which we live and work and to the world community as wellWe must be good citizens.and bear our fair share of taxes.We must maintain in good order the property we are privileged to use, protecting the environment and natural resources.Our final responsibility is to our shareholders.When we operate according to these principles, the shareholders should realize a fair return."

      The failure of shareholder capitalism, Salon, Mar 29, 2011

      --
      Conservatism: (n.) love of the existing evils. Liberalism: (n.) desire to substitute new evils for the existing ones.
    18. Re:Why..... by chuckugly · · Score: 2

      Here's a "for instance". Suppose a company like Google had a lot of IP, and decided to transfer the rights to that IP to a Swiss Google. Then the US Google may make an ass-ton of revenue, but the US Google has to pay the Swiss Google for the use of that IP, so the US Google has very little net profit to tax. Of course the Swiss Google is insanely profitable, but that's not something that the US can tax.

      This is just for instance and the names and locales I picked are of course arbitrary, merely for the purpose of illustration.

    19. Re:Why..... by roman_mir · · Score: 2

      Wrong, if Apple figures out how to make their products at 1/2 the cost, their prices will come down in order to gain new market share and make more money by selling more of their product while taking sales away from the competition.

      --
      You can't handle the truth.
    20. Re:Why..... by roman_mir · · Score: 2

      Ha, the New Deal was part of the socialist infection that lead to the financial crisis that hit USA in the 1970s.

      The Federal reserve bank of America, the IRS, New Deal, minimum wage and other price controls, business regulations, inflation created by the Fed and the Treasury is what destroyed actual productive economy in the USA and to look at all of that and conclude that in the 1970s what you observed (default on the dollar, stagflation) was not a result of the diseased socialist economic and monetary policy but to decide that whatever happened in the seventies was the reason for the further failures is to come to a completely wrong conclusion and to misdiagnose the problem.

      When you misdiagnose the problem you then tend to misunderstand the necessary solutions, which is what has been happening for the last 50 years as well (and actually earlier, from about 1930, from the moment that the USA government misdiagnosed the problem that it created and by trying to fix it in the completely wrong way caused the Great Depression).

      The complete misunderstanding of the underlying economic principles by those, who are supposedly our economic guides, the so called 'mainstream economists', their failure to be impartial on these matters and actually care about the principles of the economic systems, but instead injecting feelings and political and their misguided version of the social agenda into all of it is what allows the politicians to justify completely wrong moves that they sell as 'solutions' to the general population, most of which doesn't know or understand anything about economics, in no small part because of these so called 'experts' who exist solely to muddy the waters and steer people away from understanding for the benefit of those in power.

      --
      You can't handle the truth.
  5. What about the Dutch Charity? by 50000BTU_barbecue · · Score: 4, Funny

    You know, like how IKEA is organized? Google could set itself up as a charity dedicated to the preservation of web sites.

    --
    Mostly random stuff.
    1. Re:What about the Dutch Charity? by Anonymous Coward · · Score: 5, Informative

      Great link here. It's a shell game complicated enough to make a mollusk blush.

  6. Rich get richer by Anonymous Coward · · Score: 2

    Of course give them until 2020. They can all squeeze a few hundred billion in that time.

    You wonder why US economy suffers? It is because of schemes like this to save a buck and starve a worker/citizen/parent/homeowner/mentor.

    Come on....... Which avenue will they hit for the next tax evasion scheme?

  7. Re:Bad summary? Or horrible editorializing? by Etherwalk · · Score: 4, Insightful

    "Tax evasion" is a crime. "Tax avoidance" is what is being done here.

    "Tax evasion" has one legal meaning and another colloquial one. Colloquially speaking, "tax evasion" includes tax avoidance of this character.

    Source: talking to people who aren't tax lawyers.

  8. Re:Bad summary? Or horrible editorializing? by LordLucless · · Score: 5, Insightful

    "Tax evasion" has one legal meaning and another colloquial one. Colloquially speaking, "tax evasion" includes tax avoidance of this character.

    In other words, tax evasion is what other people do when I don't like it.

    --
    Just because you're paranoid doesn't mean there isn't an invisible demon about to eat your face
  9. Going out of business sale by rsborg · · Score: 5, Interesting

    > "For existing companies, there will be provision for a transition period until the end of 2020

    Why? Isn't that just leaving the loophole open but closing?

    Also known in consumer circles as creating a sense of urgency. I mean, you have a few short months in order to setup your new company such that you can take advantage of the double Irish, or you'll be playing against an unlevel field for the next 5 years.

    Talk about land rush.

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    1. Re:Going out of business sale by Daemonik · · Score: 2

      Playing against an unlevel playing field? I think you mean these companies will be playing against a LEVEL playing field, and that scares them.

  10. $1000 worth of child care either way, taxed differ by raymorris · · Score: 4, Interesting

    Let's say childcare for X kids in this city costs $1000.
    If mom works, perhaps in a childcare center, she pays FICA and income tax of $250 in order to bring home $1000. She spends the $1000 on childcare and is left with $0. Her net gain for month is that her kids were taken care of. To get that benefit, she did $1,250 worth of work.

    Suppose mom stays home and does the $1,000 worth of childcare herself. She doesn't get a check or write a check, and pays no taxes. Her net benefit at the end of the month is that her kids were taken care of. To get that benefit, she did $1,000 worth of work.

    Mom saves $250 in taxes by "working for her family " instead of doing the exact same work in a childcare center. There's a big tax difference based on which organizations are involved, even though the work done and the benefit received are identical.