Why Google might still benefit from Irish tax breaks

Google’s intellectual property is to be licensed from the US. Photo: Reuters

David Chance

January 03 2020 02:30 AM

A move by Google parent Alphabet to end its 'double Irish' tax structure may not be the last of the company's use of Irish tax allowances to reduce its global liabilities.

This week, Alphabet said it would end the tax structure, a move that was mandated by changes in Irish law. It said in a statement that, in future, it would license its intellectual property (IP) from the United States and not Bermuda.

While the company said it would end the Bermuda part of the 'double Irish, Dutch sandwich', a tax tool that allowed firms to shift profits to low or no-tax jurisdictions, it could still make use of substantial allowances on IP.

Apple restructured its tax operations in 2015 using the State's capital allowance for intangible assets (CAIA), helping trigger the so-called Leprechaun Economics effect that year when the Irish economy suddenly surged by 26pc.

A move by Microsoft to shift IP here from Singapore pushed both Irish and EU investment sharply higher in the second quarter of last year. Based on Alphabet's statement, a direct transfer of all the IP assets held in Bermuda to Ireland is not on the cards.

That said, the company could still gain from moving some of the assets here.

It could cut its tax bill by deducting the cost of purchasing IP assets from another of its subsidiaries. In addition, Google would be able to claim relief for money that it may have borrowed from another group subsidiary company to pay for the purchase.

When asked whether Google would seek to use the State's CAIA rules, a spokeswoman for the company declined to comment.

If it does use the tax breaks for IP in any size, the impact will be seen in Ireland's balance-of-payments data.

The scale of the potential impact on Ireland from such a move can be seen from an analysis of services imports on the economy's performance by Brad Setser, a former deputy assistant secretary for international economic analysis at the US treasury.

"The subtraction of services imports from Irish GDP over the last four quarters of data technically is about 39pc of Irish GDP," Mr Setser wrote in a recent article for the Council on Foreign Relations.

He added: "Normally, that kind of crazy number would be a sign that the data was off, or that I made an error in the calculation.

"But there is no error. The number is a measure of the scale of the distortions tied in all probability to expanded use of the capital allowance for intangible assets, and the associated swings in Ireland's investment in IP and IP imports."