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.
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