Welcome to Google’s actual offices in Dublin, Ireland.
“I am abolishing the ability of companies to use the Double Irish by changing our residency rules to require all companies registered in Ireland to also be tax resident,” Irish Finance Minister Michael Noonan said in a statement accompanying the governments new 2015 budget on Tuesday. “This legal change will take effect from the 1stof January 2015 for new companies. For existing companies, there will be provision for a transition period until the end of 2020.”
The move will affect many tech firms that take advantage of this arrangement such as Apple, Amazon, Adobe, Microsoft, and Google. Last year, for example, Google alone cut billions off of its tax bill.
Google declared $60 billion worth of revenue in the United States in 2013. Googles effective tax rate in the United States has fallen dramatically from 21 percent to 15.7 percent in recent years as the company has broadened its use of overseas tax benefits.
As Google stated in its 2013 annual report, “Our provision for income taxes and our effective tax rate decreased from 2012 to 2013, primarily as a result of proportionately more earnings realized in countries that have lower statutory tax rates as well as the federal research and development credit related to the American Taxpayer Relief Act of 2012.”
In July 2014, Ars reported thatGoogle Ireland Limited paid an effective tax rate of just 0.16 percent on 17 billion ($22.8 billion) revenue in 2013. That bill came to a mere 27.7 million ($37.2 million). Google paid 11.7 billion in “administrative expenses,” which The Irish Times reports “largely refers to royalties paid to other Google entities, some of which are ultimately controlled from tax havens such as Bermuda.”
Google and many other tech firms have recently come underincreased scrutiny for using a quirky Irish tax law arrangement that allows organizations to incorporate in Ireland but legally route money through other jurisdictionssuch as the Netherlands. It’s all done in the name of drastically reducing tax burdens. The general term is called “transfer pricing,” although specific tactics involve colorful names like the “Double Irish” and the “Dutch Sandwich.”
Samuel Brunson, a professor of tax law at Loyola University Chicago, said that such a move was a long time coming.
“It does seem like a good thing, albeit a delayed good thing,” he told Ars.”With the low corporate tax rate, though, I assume Ireland will still actively try to attract foreign direct investment, and even aggressive tax planning, since its corporate rate is staying at 12.5 percent and it still has its web of tax treaties. Still, although theres bound to be some way to arbitrage the change, it seems like a move toward a cleaner global set of international taxes.”
Ars has previously detailedhow the Double Irish works. Bloomberg reporter Jesse Drucker first described the process in 2010: a company sells or licenses its foreign rights forintellectual property developed in the United States to a subsidiary in a country with lower tax rates. The result? Foreign profits that come from that techlike the rights to Googles search and advertising technology, effectively the keys to the kingdomare now attributed to that offshore subsidiary rather than the Mountain View, California headquarters. The subsidiaries have to pay “arms length” prices for those rights, just like an outside company would.
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Ireland to phase out Double Irish tax trickery, to Googles chagrin