Apple’s lucrative tax loophole

Just how beneficial can a loophole in Irish law be when a US multinational company exploits it to save close to a €1 billion in corporation tax payments? Apple is the company, and figures obtained by The Irish Times show that between 2004 and 2008 the consumer electronics giant reduced its Irish tax bill by over €850 million – according to accounts filed in Australia by Apple Sales International (ASI), one of its Irish units. ASI was, under Irish law, regarded as a "stateless" company. And, as the company was not tax resident in any jurisdiction, ASI paid little or no corporation tax. Over the five years to 2008 where, under Ireland's 12.5 per cent rate, €890 million would have been payable to the Exchequer, ASI paid just €36 million. For Apple, a low rate of Irish corporation tax instead became a virtual zero rate.

This latest embarrassing revelation of the huge size of the tax loophole – now closed – is likely to revive international debate on Ireland’s corporation tax rate, and about the aggressive tax planning used by some multinational companies that operate here – not least Apple.

Last year at a US Senate sub-committee hearing two influential senators, John McCain and Carl Levin, both claimed Ireland was a tax haven, as Apple's chief executive Tim Cook, explained how in 2012 the company paid taxes of 2 per cent on its foreign earnings. Mr Cook told the committee that Apple had minimised its tax bill by channelling much of its overseas profits through a network of Irish subsidiaries. The Government and Mr Cook, however, denied that Apple's low tax rate reflected a special deal with Ireland, and both the Government and the OECD have also strongly rejected claims that Ireland is a tax haven.

Last October the Government in the 2014 budget finally closed the loophole that allowed Irish registered companies to be stateless for tax residency purposes, and set out Ireland's international tax strategy. There Minister for Finance, Michael Noonan in defending the low rate of corporation tax, also made clear the Government fully supported European Union and OECD initiatives to reduce harmful tax competition, and to eliminate tax evasion.

Nevertheless, the huge tax savings made by Apple, in exploiting for many years the loophole in Irish law, does raise some embarrassing questions for the Irish authorities. As ASI is an unlimited company in Ireland, it is not required to file annual accounts. However, between 2000 and 2009 the company was obliged to include its Irish accounts in filing its annual Australian accounts, and therefore the size of the Irish tax loophole was readily apparent. Why, many will now rightly ask, did the Irish authorities not discover the tax loophole much sooner, and close it much earlier?