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Ireland Announces Plan To Close Apple's Tax Loophole
Author: Scarinci Hollenbeck, LLC
Date: October 25, 2013
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Following the announcement of several international tax agreements and a higher level of scrutiny over corporate tax strategies, Ireland recently announced its plans to close a tax loophole that a number of companies – most notably Apple, Inc. – have used to significantly lower their tax liabilities.
Ireland’s Department of Finance released a new report detailing its 2014 international tax strategies, in which it declared a “change to our company residence rules aimed at eliminating mismatches – that can exist between tax treaty partners in certain circumstances – being used to allow companies to be ‘stateless’ in terms of their place of tax residence.”
Currently, Apple runs all of its non-US income through two Irish companies, one of which is classified as a tax resident and domiciled in Ireland. The other, however, is not domiciled or considered a tax resident anywhere. Apple is then able to avoid paying roughly $40 billion in taxes by funneling money into the first Irish company, and then passing the funds over as royalties and fees to the second, which is not subject to any national tax jurisdiction, Forbes explained. Ireland’s new rule will make it illegal for any company registered in the country to maintain that “stateless” status to avoid taxes.
However, closing the loophole does not necessarily mean corporations will be required by law to pay higher taxes. In fact, many analysts agreed that nothing would likely change. Although Irish Finance Minister Michael Noonan said that the country will close the loophole, it will keep in place a provision that enables corporations to nominate any country they prefer as their tax residence, according to Reuters. This includes popular zero tax jurisdictions, such as Bermuda, which is a prime choice for companies such as Google, Amazon, and other tech giants.
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