Monday 26 September 2016

Apple's tax largesse won't keep coming, so save for rainy day

The €800m corporate tax boost won't last - as a global crackdown on multinational tax looms, writes Dan White

Published 08/11/2015 | 02:30

$47.6bn (€43.8bn) of Apple's total pre-tax profits of $72.5bn (€66.7bn) for the year to the end of September were earned outside the US, and that
$47.6bn (€43.8bn) of Apple's total pre-tax profits of $72.5bn (€66.7bn) for the year to the end of September were earned outside the US, and that "substantially all" of these non-US profits were routed through Ireland

The October tax returns contained a pleasant surprise for the Government. Corporation tax revenues were €800m ahead of target for the first 10 months of 2015. The Exchequer raked in €4.7bn of corporation tax to the end of October - €2bn more than for the same period last year.

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Where was all of this extra corporation tax revenue coming from? The recently-published Apple annual report provides at least some of the answer. It shows that $47.6bn (€43.8bn) of Apple's total pre-tax profits of $72.5bn (€66.7bn) for the year to the end of September were earned outside the US, and that "substantially all" of these non-US profits were routed through Ireland.

The Apple boost is just one of a number of factors that are likely to see full-year corporation tax revenues match or even exceed the previous peak of €6.7bn reached in 2006.

That's the good news. The bad news is that Ireland's corporation tax bonanza could prove to be a temporary phenomenon, as cash-strapped governments everywhere crack down on tax avoidance by multinational companies. In his March 2015 budget, UK Chancellor George Osborne introduced a new 'Google tax', which was widely seen as being aimed at Irish-based multinationals.

The OECD published its final package of measures on base erosion and profit shifting (BEPS) to deal with profit shifting by multinationals, which costs $250bn-$400bn in lost tax revenue, last month.

The BEPS proposals, which will be signed off by G20 leaders last week, include forcing multinationals to break down their profits on a country-by-country basis when filing tax returns in the country of which they are tax-resident, and in turn imposing an obligation on that country to provide this information to all other countries in which the company does business.

Host countries will also have to share tax rulings with other countries. Tax campaigners believe that country-by-country reporting has the potential to be game-changer.

"With country-by-country reporting it is going to be pretty easy for other countries to work out how much tax they are losing," says Richard Murphy, director of Tax Research UK and one of the principal economic advisers to UK Labour Party leader Jeremy Corbyn.

Pascal Saint-Amans, director of the OECD's Centre for Tax Policy and Administration, and the main author of the BEPS proposals puts it slightly more diplomatically, speaking of a "new paradigm" in global corporate taxation.

"Globalisation created an open field for companies. We are now in an era of co-operation between countries. We do not want loopholes that result in double non-taxation. There has been a real change of environment."

We in this country have already seen some of the results of this changed environment. Following the controversy generated by the 2013 US Senate subcommittee investigation into Apple's tax affairs, Finance Minister Michael Noonan announced in his October 2014 budget speech that the infamous 'double Irish', which facilitated tax avoidance by Irish-based multinationals, was being scrapped.

Ireland will almost certainly have to do a lot more. A recent report by the European Network on Debt and Development stated that: "Ireland is still among those jurisdictions in the EU that are most problematic when it comes to cross-border tax avoidance".

This criticism of the Irish corporate tax system was relatively mild compared to that levelled at this country by Philip Alston, the UN special rapporteur on extreme poverty and human rights.

"The 12.5pc corporate tax rate and the willingness of Ireland to countenance a wide array of special arrangements designed to attract inward investment and make itself an attractive financial hub have become almost a defining characteristic of the society," Mr Alston told a Dublin conference last February.

"When lists of tax havens are made, Ireland is always prominent among them," he said.

Tax campaigners were particularly upset that, at the same time as he scrapped the 'double Irish', Mr Noonan announced a new 'patent box' which would be taxed at a rate of just 6.25pc. Was this merely replacing one loophole with another?

Mr Saint-Amans doesn't think so. "The patent box is a way of ensuring that Ireland keeps a competitive tax system but is in full compliance with the new rules.

"However, it is clear that BEPS will fundamentally change the way multinationals plan and pay their taxes. Tax should be a support function, not a profit centre in its own right," says Mr Saint-Amans.

Murphy takes a more robust view. He believes that any boost to Irish tax revenues will be purely temporary.

"Ireland may get a short-term boost but if I was the Irish Finance Minister, I would be putting the money aside for a rainy day. Overall BEPS is not good for Ireland."

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