Is the meat coming out of the Dutch sandwich?
The tax-planning scheme multinationals use to take advantage of loopholes in Dutch and Irish tax law may be getting harder. Ireland has announced plans to put an end to stateless subsidiaries in its jurisdiction. Apple has saved billions by routing its global revenue through an Irish subsidiary that is technically “stateless” for tax purposes, as we wrote in May:
Apple Operations International, which provided 30% of Apple’s worldwide net profits from 2009 to 2011, doesn’t pay taxes anywhere. This move is devilishly brilliant: The US decides if it can tax you based on where you incorporate your company. Ireland decides if it can tax you based on the location of the people managing the company. So if you incorporate a subsidiary in Ireland, and manage it from the US, you don’t (so far) have to pay taxes in either country. And that’s exactly what Apple has done, not filing a tax return for AOI anywhere in the world in the last five years.
But today, Irish minister for finance Michael Noonan released an agenda for further tax reform (pdf) as part of the country’s budget process. On the heels of criticism from the United States and European countries who fear that global companies’ aggressive use of Ireland’s tax law is depriving them of revenue, Noonan announced new information-sharing initiatives, but more importantly promised “a change to our company residence rules aimed at eliminating mismatches—that can exist between tax treaty partners in certain circumstances—being used to allow companies to be ‘stateless’ in terms of their place of tax residence.”
Promising a legislative change isn’t the same as enacting and enforcing it. But if the promise is carried out, this could be costly news for Apple, which routed $30 billion tax-free (pdf) through its stateless subsidiary between 2009 and 2011, saving between $3.7 billion and $9 billion. While the company may still be able to re-arrange its corporate structure to find new ways to keep its revenues from the tax-man, such a law will make the process more costly. At least the lawyers will be busy.
Of course, this news doesn’t matter just to Apple, but to many large multinationals, especially tech companies, that keep profits offshore to avoid paying US corporate taxes. Google, for instance, sent €8.8 billion ($11.8 billion) to Bermuda through an Irish subsidiary benefitting from the mismatch in Irish law.