Irish are just smarter about multinational tax issues than other countries - U.S. and Europe are being taught a lesson as Ireland reaps the benefits

While U.S. politicians were eager to take a bite out of Apple’s reputation over its tax affairs, they also seemed only too happy to chew up and spit out Ireland’s.

 

But with the Irish Government denying the iPhone maker got any preferential tax deal, all this ‘tax haven’ subterfuge simply goes to show Ireland is envied for its ability to have solved the multinational taxation puzzle.

 

The only reason there is a gnashing of teeth in the US is because poor tax legislation allows major American corporations to file minimum tax returns at home while funneling taxable profits through operations overseas.

 

British authorities have also being huffing and puffing at foreign multinationals that seem to pay pittance in the UK even though they have substantial business interests there.

 

But while politicians play to the crowd, the simple fact is that these corporations are not breaking the law, but using the system.

 

And Ireland is also playing the game to its benefit rather than simply sitting back and watching from the sidelines as money flows elsewhere.

 

Indeed, this strategy has been a resounding and often remarked upon success. Our 12.5 percent corporate tax rate, not only kick started the Celtic tiger, but is helping propel the Irish economy back to growth after a ruthless recession.

 

The figures speak for themselves — in a country of just over four million people, over 115,000 work for US companies and countless others are involved in ancillary support operations. While many may argue that these profits will eventually leave our shores, the knowledge transfer to the local economy and boost to the exchequer will have long term payoffs.

 

However, even in an era of ecommerce and the growing global presence of massive multinationals, Ireland’s approach to attracting overseas business has raised the ire of not only the US but also our EU neighbours.

 

But as a tiny economy, operating in a tiny country, with a tiny population, situated on the most westerly point of Europe, Ireland needs all the home advantages it can muster.

 

Our tax rate compares with 35 percent in the US, 33 percent in France and 23 percent in the UK. But our multinational tax regime is open and transparent, unlike many other European countries.

 

Starbucks, for example, clocked up sales of £400m in the UK last year, but paid no corporation tax. Amazon, which had sales in the UK of £3.35bn in 2011, felt only legally obliged to file a ‘tax expense’ of £1.8m.

 

But the reason senators in the US were shaking their fists at Ireland is because, at 35 percent, America has the highest corporate tax rate in the world. So companies are effectively ‘encouraged’ to export jobs, investment and intellectual property to foreign soil.

 

It also discourages the repatriation of profits made on foreign soil back to the US. The most recently available figures show that US companies held $1.7 trillion in unremitted profits.

 

So rather than bash Ireland or the companies who legally use the tax system to their benefit, maybe the US, UK and our other European neighbours should focus on tax reform rather than moaning at how Ireland is, for the moment, one step ahead of the game.