Blog Post

Ireland will shut Apple’s tax “holy grail” – but leave loopholes wide open

Stay on Top of Enterprise Technology Trends

Get updates impacting your industry from our GigaOm Research Community
Join the Community!

In a speech setting out Ireland’s annual budget, Finance Minister Michael Noonan declared an end to “ghost companies” — a reference to a notorious Apple(s aapl) subsidiary created in the 1970’s that has no declared residency for tax purposes anywhere in the world.

In the speech, reported by the BBC and other outlets, Noonan declared that his country wants to play fair but “play to win” in the competition for international investment. He also rebuffed demands to raise Ireland’s 12.5% corporate tax rate, which has been an irritant to Germany and other EU countries.

The end to the Apple loophole is an apparent sop to the United States where Sen. Carl Levin (D-Mich) has railed that Apple has found “the holy grail of tax avoidance.” In reality, though, the gesture is unlikely to make a lick of difference.

As analysts point out, Noonan also declared that foreign countries can declare residency wherever they like, including havens like Bermuda which are a key element of “Double Irish with a Dutch Sandwich” tax strategy employed by tech firms like Apple and Google(s goog) (Quartz has a good summary here). The upshot is that Apple can simply move the assets now flowing through its “holy grail” ghost company into another vehicle with a fixed Caribbean address.

The SEC recently concluded that Apple’s loop hole is perfectly legal, leading the Wall Street Journal to scold Levin for his theatrics, and claim that America should instead worry about reforming its own tax code so that firms like Google and Apple can repatriate their overseas income without a sky-high penalty.

Ireland, meanwhile, is trying to prove that its tech industry is composed of more than just accountants; the country, which is preparing to go without EU bailout loans in 2014, has attracted prominent CEOs and VCs to attend its two-day Web Summit in Dublin later this month.

One Response to “Ireland will shut Apple’s tax “holy grail” – but leave loopholes wide open”

  1. Ah, an excellent point to bring up the great divide in American politics between Democratic politicians and their Republican counterparts. It’s a bit simplistic, but it explains a lot.

    The Democrats talk quite loudly about ‘taxing the rich,’ whether individuals or corporations. That’s what Sen. Carl Levin was doing in the article above. That gets the votes of the information-challenged, a key Democratic consistency.

    But high nominal tax rates are only Step One in the Democratic agenda. Step Two is to offer loopholes for those who make the proper political contributions. If you’re rich, as little as $10,000 given to the right person, can save you $10 million in taxes. That’s why our tax laws are so complicated. And that same practice adopted overseas is how Apple, Google and others can use Irish and other loopholes to evade taxes.

    In short, what Sen. Carl Levin’s all hot and bothered about is that those overseas loopholes mean that Apple keeps its money beyond the seas, rather than bring it home, which would necessitate buying politicians like him to create domestic loopholes.

    The Republicans, in a fumbling and inarticulate way represent the opposing POV. They want nominal tax rates to be low but unaccompanied by loopholes. That’s partly because they can never compete with the Democrats in granting those loopholes. It’s partly because they’re the party of small businesses who can almost never afford to buy off politicians anyway.

    But Republicans are troubled by one of their factions, those who think that consistency is the measure not of little minds but of great ones. Rather than simply opposing highly progressive tax rates that provide an incentive for corruption, they want one tax rate for everyone from Bill Gates to the single mom who’s working as a waitress.

    That, they think, is being principled. No, it’s simply being stupid. Our present-day federal government is far too big to be funded by taxing Susie Waitress the same rate as Bill Billionaire. And their stupidity about that allows the Democrats to get away with their Fake Tax the Rich schemes.

    This is why the best, single-sentence description of American political history is that, “Democrats are the evil party, while Republicans are the stupid party.”