Tag Archives: tax avoidance

Apple Tax and Double Irish

I blogged on the ‘Double Irish’ in 2014 and that this tax arrangement would be ended fully within four years.

Yesterday the European Commission ruled that a tax deal between the Irish government and Apple amounted to illegal state aid with Apple being ordered to pay a record-breaking €13bn (NZ$20bn) in back taxes to Ireland. Apple, the world’s biggest company, was paying a tax rate of just 1% and in 2014 was paying 0.005% when he usual corporate rate in Ireland is 12.5%. This equates to €50.00 tax for every €1 million earned.

The commission said Ireland’s tax arrangements – Double Irish – with Apple between 1991 and 2015 had allowed the US company to attribute sales to a “head office” that only existed on paper and could not have generated such profits. See below:

Corporate Tax rates

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Double Irish is a tax avoidance procedure that some multinational corporations use to lower their corporate tax liability. The strategy uses payments between related institutions in a corporate structure to shift income from a higher-tax country to a lower-tax country. The most popular countries being the Cayman Islands, Bermuda, Jersey and Guernsey as they have corporate tax rates of 0% – see list of Central Government Corporate Tax Rates.

Many US technology companies have taken advantage of a loop hole in Irish corporate law which allowed them to be registered in Ireland without being tax-resident there – see chart below to see how it all works. Google for instance keeps it intellectual property in an Irish company that is tax-resident in Bermuda, which has a zero tax rate of corporate tax. However from January 2015 new companies domiciled in Ireland will also have to be tax-residents there, making the Double Irish impossible.

Double Irish

Inequality – 'The Price We Pay'

Below is a trailer to the documentary ‘The Price We Pay’. The present-day reality of big-business tax avoidance has been extremely prevalent in the news. Multinationals have been depriving governments of trillions of dollars in tax revenues by hiding profits in offshore havens. Tax havens, originally created by London bankers in the 50s, today put over half the world’s stock of money beyond reach of  public treasuries. Tax avoidance by big corporations and the wealthy are leading to historic levels of inequality and placing the tax burden on the middle class and the poor.

Why increasing taxes in developing economies may help growth.

In order to assist growth higher taxes may seem illogical as they take money out of the circular flow. However developing countries on average collect only 13% of GDP in tax compared to 34% in developed countries. Public investment can encourage private investment and it is estimated that an $1 of public investment increases private investment by $2. At the recent UN conference in Addis Ababa there is a desire to increase the tax take of LDC’s to 20% of GDP.

Why do developing countries not collect much tax?

  1. most of the population have no money
  2. most developing countries have a prevalent informal economy
  3. because of the rural nature of LDC’s the cost of tax collection is often higher than the benefits

The World Bank has suggested improving the tax agencies and tax revenue in Rwanda has increased by 6.5 time after automating the process, which reduced errors and opportunities for fraud. There would be much more tax revenue if LDC’s reduced tax emption and avoidance, including from foreign investors. It is estimated that exemptions have cost developing countries $1bn in lost revenue in 2011 whilst the cost of multinational companies deliberately avoiding tax exceeds $200bn a year.

How multinationals avoid paying tax

The most common way multinationals avoid taxes is through “transfer pricing”, in which their subsidiaries in tax havens buy goods cheaply from arms in more exacting countries, and then sell them on at a higher price, thereby shifting profits to the tax haven. The OECD is trying to combat such schemes by persuading tax authorities to require firms to disclose where they generate their profits and share the disclosures. A proposal from 137 developing-world NGOs goes further, calling for the formation of an international tax agency, although it is unlikely to prosper.

Blatant tax dodging.

This is a major problem as undeclared money transfers, false invoices etc cost developing countries more than $990 bn in 2012 which equates to almost 4% of a developing countries’ GDP.

Source: The Economist 11th July 2015

The end of "The Double Irish"

Corporate Tax ratesThis phrase has come up a lot in the business media. It is a tax avoidance procedure that some multinational corporations use to lower their corporate tax liability. The strategy uses payments between related institutions in a corporate structure to shift income from a higher-tax country to a lower-tax country. The most popular countries being the Cayman Islands, Bermuda, Jersey and Guernsey as they have corporate tax rates of 0% – see list of Central Government Corporate Tax Rates.

Many US technology companies have taken advantage of a loop hole in Irish corporate law which allowed them to be registered in Ireland without being tax-resident there – see chart below to see how it all works. Google for instance keeps it intellectual property in an Irish company that is tax-resident in Bermuda, which has a zero tax rate of corporate tax. However from January 2015 new companies domiciled in Ireland will also have to be tax-residents there, making the Double Irish impossible.

Double Irish