CEO Barry O'Leary of Industrial Development Agency Defends Ireland's Tax-Rate Policy
Barry O'Leary, CEO of Industrial Development Agency, responsible for Ireland's overseas investments, spoke out against concerns that his country is a tax-haven on CNBC's Squawk Box on Wednesday morning.
Complaints about Ireland's low tax-rate policy, which many large international companies have decidedly taken advantage of at its standard 12.5 percent, have popped up all throughout the media coverage of Apple's (NASDAQ: AAPL) alleged tax-dodging and beyond.
"Ireland is definitely not a tax haven by any definition of the OECD [Organisation for Economic Co-operation and Development], " said O'Leary.
Most of the 1,000 plus multinational companies have substantial operations in Ireland, with many service Europe and the Middle East, O'Leary said. He listed EMC (NYSE: EMC) with 3,000 employees, Intel (NASDAQ: INTC) with 5,000 employees, and Pfizer (NYSE: PFE) with 4,000 employees as core examples of those operations.
Apple's holding company, Apple Operations International, has no employees and no tax residence in Ireland, however. The check-the-box loophole allows Apple (a foreign corporation in Ireland) to appear as though it does not exist to the United States legal system, meaning a checked Apple subsidiary is treated like a corporation by everyone except for the U.S. Fortunately for Apple, all of their meaningful subsidiaries are bundled under Apple Operations International, and all of their boxes are checked, meaning they're simply invisible to U.S. taxation.
Also, the Ireland's standard 12.5 percent tax rate is only applied after income for expenses like large royalty payments for intellectual property licenses are deducted from the taxable income. The movement bounces from one Irish subsidiary to another. Apple Distribution International's profits go to receipts paid to Apple Sales International, owners of the intellectual property, and after payments are made, dividends are distributed throughout Apple Operations International.
After the process, Apple's foreign profits are taxed at 1.9 percent, far under Ireland's standard 12.5 percent, because of these active, and perfectly legal, loopholes.
O'Leary said that international companies would take advantage of anything that they could, and that if Ireland were to hypothetically not exist, there would be many other countries where the same facilities would be available.
"It could've been Starbucks in terms of the Netherlands or it could've been Amazon with Luxembourg, et cetera, but I think the important thing is there is a mismatch between national and international tax agreements, double-taxation agreements," said O'Leary.
If the decision making factor in your investment was based on taxation alone, then companies would go to Switzerland or Singapore where you can get 0%, O'Leary included.
"Big economies that are big domestic markets have high tax rates. Peripheral countries that don't have a big domestic market have to have an advantage. Now some countries choose to play on the tax front as a competitive advantage, others with their cost structure, having natural materials, et cetera," said O'Leary.
O'Leary noted that if he were to advise Obama from his outsider perspective, he would tell him to "reduce the tax rate somewhat" in the United States.
"It is not right that so much money can stay overseas and not flow back," said O'Leary.
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