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

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."

Comments

Hi-ho, Hi-ho,

[Anonymous Coward]

To a new tax haven we go!

*whistles*

Why.....

[thieh]

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.

Re:Why.....

[alexander_686]

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.

Re:Why.....

[drfred79]

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.

Re:Why.....

[ShanghaiBill]

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.

Re:Why.....

[Charliemopps]

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.

Re:Why.....

[Lord Kano]

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

Re:Why.....

[alexgieg]

"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

What about the Dutch Charity?

[50000BTU_barbecue]

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

Re:What about the Dutch Charity?

[Anonymous Coward]

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

Re:Transition period?

[alexander_686]

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.

Re:Bad summary? Or horrible editorializing?

[Etherwalk]

"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.

Re:Bad summary? Or horrible editorializing?

[LordLucless]

"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.

Going out of business sale

[rsborg]

> "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.

Re:Of course they're giving a 6-year transition

[ClickOnThis]

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.

$1000 worth of child care either way, taxed differ

[raymorris]

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.

Re: Transition period?

[Anonymous Coward]

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

Re:Transition period?

[DrXym]

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.