Ah, Ireland. Land of leprechauns, rainbows and… low corporate taxes. That’s right: Ireland is a tax haven.

Over the past few years, Ireland has been taking increasing heat from its near neighbors and the US for its perceived efforts to lure corporations to the Emerald Isle. Already facing criticism from many in the UK, Ireland made President Obama’s 2009 list of tax havens which might be targeted as part of an overall strategy to crackdown on multinational corporations who set up shop elsewhere in an effort to avoid US taxation. Microsoft is one such company which reportedly saved $500 million in US tax by relocating significant assets to a small shop in Dublin. Apple quickly followed in Microsoft’s footsteps. They are part of a trend since 2006 of many tech and pharmaceutical companies which have made the move to Ireland to take advantage of lower corporate tax rates and other tax avoidance strategies (especially as it relates to intangible property). Other companies include Pfizer, Dell and Wyeth.

Ireland’s corporate tax rate is a low 12.5%. By comparison, tax rates in the US start at 15% and climb, depending on income, to 35%. That has helped Ireland become one of the world’s most profitable countries for US corporations, according to a Tax notes analysis. At least 75% of income reported to the Irish Treasury by US companies appears to be from activities that did not originate in Ireland. Those statistics worry the US government, which despite having a traditionally friendly relationship with Ireland, is anxious to recover some of that lost revenue.

(Of course, those low corporate tax rates didn’t keep mega-wealthy international rock band U2 from moving out of Ireland and into the Netherlands to avoid taxation in 2006. The move was in response to a move by the Irish Government to put a cap on the amount of tax-free earnings available to artists. Bono received an enormous amount of criticism from his countrymen for the move, which he defended in a 2009 interview.)

It’s an interesting tax policy dilemma for the US. We’ve talked a big talk about crackdowns on companies who shift money to Ireland, but are we really going to do anything? It’s easy to throw stones and make noise at tax havens like Liechtenstein – but it’s much harder to take a tough stance against countries that we consider close friends. My guess is that we won’t make too much of an issue of it, despite the publicity. We have bigger fish to fry. Besides, Ireland is the country that gave the world Guinness, amazing works of literature, soda bread, Pierce Brosnan (my mother is swooning now) and great names (*clears throat*) – not to mention a reason to wear green today.

Sláinte!

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Author

Kelly Erb is a tax attorney and tax writer.

Comments

  1. I don’t know anything about Ireland except The Wife’s Family is from County Cork (or at least they claim lol). But how mad can we (we, being a country of 300 million lol) be that a country has a better tax rate? Not tax laws concerning secrecy, but just a better tax rate.

    I agree with you – there are bigger fish to fry out there.

  2. garagefather Reply

    If the US wants the revenue back, try and lower the tax rates in the US. I find it funny how Washington views moves by businesses and citizens to avoid taxation. They think that we should all just accept their wisdom and continue to bust our butts for them while we ignore their fraud, waste, abuse, and discriminatory tax laws. I guess that is why when the feds lower taxes that they end up collecting more tax dollars and when they raise taxes it often hurts their revenues. (Reagan got the capital gains tax cut in half and when he left office tax revenues had doubled to the treasury) They think that raising taxes will equally raise revenue but never consider the actions of free people to make choices that will decrease their tax burden and thus, actually lower tax revenues to the government through changes in behavior and productivity. How many people leave or change their lifestyle to avoid heavy taxation? How many people purposely earn less money to avoid a higher tax bracket? You can only punish success so much before the successful change their behavior in a way that is self beneficial and thus, detrimental to tax collections.

  3. I think you do Ireland an injustice to suggest that corporates are primarily driven in locating here by the tax rates – many countries have even lower rate.
    Should not more credit be given to late nights in quaint irish pubs drinking Guinness?!

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