Apple CEO Tim Cook Senate testimony ireland
J. Scott Applewhite/APApple Inc. CEO Tim Cook testifies before a Senate committee Tuesday about the $1 billion the company holds in an Irish subsidiary as a tax strategy.
By Conor Humphries and Padraic Halpin

DUBLIN and CORK, Ireland -- Ireland said Tuesday it wasn't to blame for Apple's low global tax payments and had no special rate deal with the company, after the U.S. Senate said it paid little or no tax on tens of billions of dollars in profits stashed in Irish subsidiaries.

The Irish government, which has seen the luring of U.S. multinationals with low taxes as a key part of its economic policy since the 1960s, said its system was transparent and other countries were responsible if the tax rate paid by Apple Inc. (AAPL) was too low.

"They are issues that arise from the taxation systems in other jurisdictions, and that is an issue that has to be addressed first of all in those jurisdictions," deputy prime minister Eamon Gilmore told national broadcaster RTE Tuesday.

In a 40-page memorandum released ahead of an appearance by Apple Chief Executive Tim Cook before Congress on Tuesday, a Senate subcommittee identified three subsidiaries that have no tax residency either in Ireland, where they are incorporated, or in the United States, where those companies are managed.

The main subsidiary, a holding company that includes Apple's retail stores throughout Europe, hasn't paid any corporate income tax in the last five years, the report said.

Apple's arrangement has allowed it to pay just 1.9 percent tax on its $37 billion in overseas profits in 2012, despite the fact that the average tax rate in the countries of the Organization for Economic Cooperation and Development, its main markets, was 24 percent in 2012.

The report said "Ireland has essentially functioned as a tax haven for Apple."

Gilmore said Ireland was pursuing the issue of international tax avoidance "very strongly" at the European Union and the OECD, which is spearheading initiatives.

The issue will be discussed at a meeting of European Union officials on Tuesday, he said.

The Senate report said a subsidiary with a mailing address in Cork, Ireland's second-largest city, received $29.9 billion in dividends from lower-tiered offshore affiliates from 2009 to 2012, comprising 30 percent of Apple's global net profits.

It said it exploited a difference between Irish and U.S. tax residency rules.

'No Special Rates'

Apple said in a comment posted online on Monday it didn't use "tax gimmicks." It said the existence of its subsidiary Apple Operations International in Ireland didn't reduce Apple's U.S. tax liability, and the company would pay more than $7 billion in U.S. taxes in fiscal 2013.

A number of U.S. multinationals including web search leader Google Inc. (GOOG), online retailer Inc. (AMZN) and coffee-chain Starbucks Corp. (SBUX) have come under criticism for arranging their affairs in a way that leaves them liable to low rates of tax on billions of dollars of overseas sales.

Apple's auditor, Ernst & Young, which also audits Google and, declined immediate comment.

According to the congressional report, Apple's tax operations head Phillip Bullock told the subcommittee that the company had obtained a special low tax rate through negotiations with the Irish government below the already low standard rate of 12.5 percent. Apple said this had been 2 percent or less for the last 10 years.

Ireland's Prime Minister Enda Kenny denied there was any special rate agreement.

"Ireland does not, I will repeat, doesn't do special tax rate deals with companies; we don't have any special extra-low corporate tax rate for multinational companies."

A spokesman for Ireland's finance department said Ireland's tax system was statute based, so there was "no possibility of individual special tax rate deals for companies."

A spokeswoman for the Office of the Revenue Commissioners said she couldn't comment on individual cases as that would breach taxpayer confidentiality, but she also denied that the tax authority agreed special low tax rates with multinationals.

"All companies in Ireland pay the standard 12.5 percent rate on their trading profits arising in Ireland, and they pay a corporation tax rate of 25 percent on their Irish non-trading income," she said.

Unemployed Cork local Tom Falvey, 55, who got 10 weeks' work attaching cladding to the exterior of Apple's three-story headquarters in the early 1990s, said Ireland's jobless would pay the price for any rise in taxes.

"The companies will just say 'take a jump' and move somewhere else more obliging. Our unemployment is high enough as it is," he said, as he walked his dog past the sprawling complex 3 miles from the city center.

A dozen or so casually dressed Apple workers, most in their 20s and 30s, who were smoking cigarettes outside the 1990s office building, said they couldn't talk to the press.

Alongside, builders are working on a sleek new glass and concrete extension. Michael Ambrose, a 58-year-old former construction worker walking by, said the government was powerless to get more tax out of Apple.

"We're a small country and feel we can't say no. We know they'll just go off to one of these Asian countries. They're a law unto themselves."

Fiscal Attraction

Apple said last year it would add 500 more people to its Cork workforce of 2,800.

Ireland's pro-business tax structures have attracted U.S. multinationals including Google, Microsoft Corp. (MSFT) and Facebook Inc. (FB), big employers who have helped offset an unemployment rate stuck above 14 percent, but its low corporate tax rate of 12.5 percent has drawn criticism elsewhere in Europe.

The government regularly touts its success in attracting international investment as one of its main achievements, and multinationals, which account for almost 10 percent of Ireland's workforce, have taken the sting out of austerity measures prescribed under an EU/IMF bailout by creating jobs.

U.S. firms invested $30 billion in Ireland last year, more than in China and the rest of emerging Asia combined, according to the American Chamber of Commerce.

In the 1960s Ireland turned around its economy by attracting foreign businesses with tax holidays. After joining what later became the European Union, it was no longer able to do this and instead shifted to a system of low tax rates -- currently 12.5 percent -- and a light touch approach to tax administration that allows companies to reduce their effective rate much lower.

A raft of mainly U.S. companies have taken advantage of Ireland's tax regime to minimize their tax bills.

Microsoft's Irish base, along with another operation in low-tax Singapore, helped the company pay tax of just 9.4 percent on $21 billion of non-U.S. earnings last year. Google channels most of its overseas profits through Ireland, a practice that allowed it to pay tax at a rate of just 2.6 percent on $6 billion of foreign profits in 2012.

Patrick Coveney, the chief executive of Greencore, one of Ireland largest companies, told RTE radio that it was politicians across the world who were responsible for these tax treaties and tax structures.

"I find it frankly a little frustrating that it is them who are piling in and criticizing international traded businesses who are merely availing of the tax environment that they have put in place," said Coveney, a former president of the Dublin Chamber of Commerce.

Irish opposition party Sinn Fein, which has 14 seats in Ireland's parliament, said the companies should be invited before a parliamentary committee when it holds hearings shortly to discuss corporation tax.

"This Government continues to protest that our tax system is transparent. It is transparently flawed," said the party's finance spokesman Pearse Doherty. "Our tax code has been written for the benefit of large companies and the wealthiest in society. This is what I want to get to the bottom of in the Committee hearings."

Additional reporting by Tom Bergin.

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If Ireland has encouraged companies to move there with low corporate tax rates, then they should be swamped with companies and their economy should be booming. But it isn't, they have slow growth and high unemployment just like everyone else. Apparently low corporate tax rates does NOT lead to a strong economy.

May 21 2013 at 10:14 PM Report abuse +2 rate up rate down Reply

Google is playing the same game. The UK are having a hearing about their tax cheating. They made $18 billion and paid one tenth of one percent in taxes. Yes, businesses are very smart at paying lobbyists to get loopholes in the tax code, but the rest of us don't have three million sitting around to have our taxes lowered. We have to abide by the rules, the multinationals don't because our government is corrupted with money, not smart business people.

May 21 2013 at 8:06 PM Report abuse +1 rate up rate down Reply

American Businesses will ALWAYS be smarter than Congress...I didn't think that was even up for debate?. Maybe if we taxed based upon what was fair instead of what we want to provide...we wouldn't have stuff like this. I don't want to risk my money or work 80 hour weeks to support 40 people living in Shreveport LA who are able-bodied, yet feel the GOVT should take care of them.

May 21 2013 at 6:23 PM Report abuse rate up rate down Reply
1 reply to ricklexus's comment

You have no idea what you are talking about. Quit repeating FOX news talking points.

May 21 2013 at 7:55 PM Report abuse +1 rate up rate down Reply
1 reply to rpulit's comment

Keep telling yourself that...

Won't make it true, but it will allow you to continue to feel superior.

May 21 2013 at 8:10 PM Report abuse -1 rate up rate down
John Moran

Today I'm embarrassed to be Irish! So, the Irish are saying that it's not their fault they lure corporations to setup bogus offices in their country using abnormally low tax rates, it's just business for them, greedy bastards!

Same thing happens in the U.S. when one greedy state (or city, county, etc.) offers business low taxes, free land/leases, and other perks to get them to move to their jurisdiction. The companies play one jurisdiction against another to get all they can and the average workers make up the revenue for them in payroll and other taxes. GREED RUNS RAMPANT!!!

May 21 2013 at 4:46 PM Report abuse +2 rate up rate down Reply

These Senators should be asking APPLE exc. for advise...

May 21 2013 at 4:24 PM Report abuse +1 rate up rate down Reply

1.9% on 37 Billion is( $703 million )..... lot of Money...

May 21 2013 at 4:23 PM Report abuse -1 rate up rate down Reply

Ah yes... Carl the Lib Senator from Michigan (think Detroit & Lib Ex- Gov Grandholm) Carl want you to pay more taxes. He votes for all increases. PS he is not running for another term..


May 21 2013 at 4:11 PM Report abuse -1 rate up rate down Reply

Apple, who did pay $6 billion last year to the US has proven once again that they are smarter than congress. Congress wrote the rules, Apple, GE, and the rest of the global players are merely following the rules laid out by congress. Would you pay taxes if you were not forced to pay them?

Until congress decides to put politics and party affiliation away and act as rational human beings, looking out for all people and not just the people who are represented by K Street, we are going to see this scenario played out time and time again.

The tax laws of the US were written in the 1950's when global commerce was and exception. Now global commerce s the rule. Personally I don't think congress as it now stands is capable of updating the tax code.

May 21 2013 at 4:07 PM Report abuse +1 rate up rate down Reply
1 reply to thegeezer3's comment
John Moran

You seem to forget that big business are the ones who wrote the rules through their lobbying (bribes, payoffs, or whatever you want to call it) of Congress. They are the ones paying for loopholes, incentives, and laws that favor them and, of course, those corrupt people in Congress are happy to sell out the voters if the bribe is big enough.

May 21 2013 at 4:50 PM Report abuse +3 rate up rate down Reply

We hear over and over again that it's a global economy. Unfortunately, our government cannot force international companies to confine their business to the US.

May 21 2013 at 2:54 PM Report abuse +1 rate up rate down Reply
2 replies to darrthom's comment

darrtom: I see your point, however; when they sell product in the US as a US Company, regardless if they sell overseas, they should be taxed. Loopholes? Per an Act of Congress better yet, no action by the same. After reading the article one month ago on Huffington Post regarding Secrecy in Offshore Accounts it answers the argument about who is governing the Government and why. Define it as profits, self service, while selling Democracy, and you have the donkey to pin the tail on.

May 21 2013 at 3:22 PM Report abuse +2 rate up rate down Reply
4 replies to rruffier's comment
John Moran

Sure they can, you need to think outside of the box. First, the U.S. is the biggest economy in the world. Everyone wants to sell their products here (and in China) and we've made it too cheap and easy for big business to rape the average American taxpayer. That's what trade laws, tariffs, etc. are for, to even the playing field. Why does Toyota, Nissan, Honda and others have factories in the U.S? Because they get tax benefits. Time to start playing hard ball with people like Apple. Apple needs the consumers WE DON'T NEED THEM!

Apple is telling us that it's a privilege for us to buy their products! It's time that consumers realize that it's Apples privilege to sell to us, not the other way around!

May 21 2013 at 4:56 PM Report abuse rate up rate down Reply