Ireland a favourite tax bolthole as firms continue to leave US
IRELAND has been criticised over claims that multinational firms have set up home here to reduce their global tax bill.
US giants, Google and Microsoft, are also among the big names using their Irish units to substantially cut costs.
It is over a decade since the US Congress passed a law that was meant to discourage companies from shifting their legal addresses to outside America by penalising chief executives.
That law hasn't quite panned out. Ten years on, the reincorporations continue and the pace is rising, with a fresh wave of companies leaving the US system to avoid hundreds of millions of dollars in taxes.
In recent years, at least 13 companies have announced or completed shifts of legal address, which tax experts call 'inversions,' to lower-tax nations.
Four – drugmakers Actavis, Jazz Pharmaceuticals, and Perrigo and Cleveland-based manufacturer of electrical equipment, Eaton – have moved to Ireland, with a fifth move pending.
Despite the names and numbers fleeing the States, a senior OECD official has insisted Ireland is not a tax haven – music to the ears of Finance Minister Michael Noonan, who has staunchly defended our rates.
It is claimed that while US firms are managing to break the Congress laws, some companies have even found ways around it, so they can actually create new rewards for executives. When Actavis changed its incorporation to Ireland in October, the New Jersey-based drugmaker helped chief executive Paul Bisaro avoid the law's bite by handing him more than $40m (€29m) of stock as much as three years ahead of its schedule, then promising him an additional $5m (€4m) to remain with the company.
The 2004 law has "clearly been a failure" in halting the tax exodus, said Edward Kleinbard, a professor at the University of Southern California's Gould School of Law. Actavis said last year that it would have to make additional payments to retain Bisaro and his team, after allowing them to collect their shares ahead of schedule.
Two months after Actavis announced the reincorporation to Ireland, Gilbert, the Bank of America analyst, asked on a conference call if Bisaro could comment on the "tax rate land grab that is going on".
"Unfortunately, we have a tax structure in the United States that's putting companies in the US at a disadvantage," Bisaro said. "We won't be at a disadvantage any more. And I think other companies have to take a look at that." The statutory US corporate income tax rate of 35pc is the highest among developed countries, although many companies end up paying less.
The 2004 law imposes a special tax of 15pc on restricted stock and options held by the most senior executives when a company reincorporates outside the US.
Since the measure took effect, at least seven large companies have disclosed in securities filings that they risked triggering the tax.
Lawmakers in both parties, and President Barack Obama, have endorsed tax code changes that would lower the rate below 30pc, reducing the incentive to reincorporate overseas.
Those proposals have been stymied by disputes over details and what should happen to individual taxes.