Ireland taking more than it gives to Africa

OPINION:State's role in world of multinational taxation works against aid aims

Ireland has long been proud of its contribution to development aid to Africa and other poorer parts of the world, but the growing amount of information available concerning the role Dublin plays in the tax structures of multinationals challenges that view. There is a strong argument to the effect that more money is sucked out of Africa by way of Dublin than is contributed by way of aid from the Irish exchequer.

The extraordinarily prominent role that Ireland plays in the world of multinational taxation was starkly illustrated during a recent sitting of a Senate committee in Washington.

The Senate Permanent Subcommittee on Investigations used Microsoft as a case study on how multinationals are using global structures to avoid US corporation tax. The committee chairman Carl Levin was careful to make the point that his committee was a fan of Microsoft’s creativity and entrepreneurial spirit, but not of its tax policies. Other multinationals acted in the same way, he said.

Using access to confidential information granted to the committee by Microsoft, a memorandum was drafted which, amongst other matters, showed how Microsoft used its Irish subsidiaries to reduce its 2011 US tax bill by $2.43 billion (€1.87 billion).

The $2.43 billion saving was achieved mostly through the avoidance of tax on royalty payments between Microsoft Ireland Operations Ltd, and a subsidiary, Microsoft Ireland Research, which is in turn a subsidiary of a company called Round Island One.

The three companies have their registered addresses at 70 Sir John Rogerson’s Quay, Dublin, the offices of solicitors Matheson Ormsby Prentice. Round Island One is a Bermuda company, despite having its registered office here. It was incorporated in 2001.

Taxed in Dublin

The memorandum outlined how Microsoft’s global structure has three centres outside the US, with one, the pioneer, being Ireland. The Irish centre funded another of the global centres, in Puerto Rico, which is used to help the company avoid corporation tax on sales in the US itself.

The Irish centre is responsible for retail sales in Europe, the Middle East and Africa. Because Microsoft Ireland Research has the right to sell Microsoft products in that geographical zone, profits on the sales of Microsoft products in that vast portion of the globe end up in 70 Sir John Rogerson’s Quay.

Seen from the perspective of Africans, it must be very rum indeed to see profits from sales in their countries being taxed in Dublin, to fund a society a million miles away from theirs in terms of development.

All multinationals organise their global affairs so as to minimise their tax bills. It is particularly easy to do it with technology firms, because of the importance of intellectual property to their profits.