Yahoo’s Irish move may be start of Swiss corporate exodus

Yahoo! Inc is shifting its main European tax base to Ireland from Switzerland, a Reuters examination of company statements and accounts shows, as pressure mounts on the Alpine nation to abolish some corporate tax incentives.

The internet search group said the shift reflected a streamlining of its European operations and was not motivated by a desire to cut its tax bill, one of the higher in the U.S. tech sector.

“Yahoo pays all taxes required and complies with tax laws in all countries where we operate. We take our tax obligations seriously,” Yahoo spokeswoman Caroline Macleod-Smith said.

However, tax experts said it was likely the changes that Switzerland is expected to make to its tax rules, following European Union pressure, had some influence over the decision, and that other companies could follow Yahoo’s lead.

“Obviously tax reasons are part of the reasons they are going out of Switzerland,” said Frank Marty, head of tax policy at lobby group Economie Suisse.

“The tax regimes we have are very successful (in attracting companies) but there is pressure that Switzerland abolishes the current regimes … The risks are substantial,” he added.

Currently, Switzerland offers tax rates to companies which make their profits outside Switzerland that are less than half the rates imposed on companies that operate locally.

EU rules require countries not to discriminate between domestic and foreign firms in taxation and Brussels has told Switzerland that if it wants to enjoy unfettered access to the bloc’s market, it needs to scrap this practice.

Switzerland is discussing harmonizing corporate tax rates at a lower level than its current domestic rate of around 21 percent but Marius Brulhart, professor of economics at the University of Lausanne, said the country may not be able to go as low as Ireland’s 12.5 percent rate.

Barry O’Leary, chief executive of IDA Ireland, which is responsible for attracting inward investment into Ireland, said he was talking to “a handful” of other companies about possible relocations from Switzerland to Ireland.

“If two or three of them decided to relocate that starts a trend,” he said.

All companies have a duty to investors not to pay any more tax than they need to but in recent years, revelations that companies such as Google and Apple use complex structures to shift profits into tax havens have prompted public anger and spurred the Group of 20 leading economies to launch a drive to tackle profit shifting.

DUBLIN BOUND

In recent months, Yahoo has published statements on its website and emailed customers to say the terms and conditions for European customers are changing.

Since November companies which advertise on Yahoo! websites have entered contracts with Yahoo! EMEA Ltd, an Irish-registered business.

From late March, private users of premium mail and other services will be doing business with the Irish company.

Previously, customers in France, Germany, Italy and other countries contracted directly with local Yahoo subsidiaries and paid fees to them.

The national units passed the revenues directly to a Swiss affiliate, Yahoo! Sàrl, based in Rolle, in the Swiss Canton of Vaud, and Yahoo! Sàrl paid them commissions for securing clients, accounts for the units show.

The commissions were set at a level which were just about enough to cover the national units’ costs and generated little profit that European authorities could tax.

U.S. internet companies have been especially effective at cutting their overseas tax bills because weaknesses in European tax rules means it can be hard for tax authorities there to claim taxing rights on online sales revenues.

Between 2009 and 2012, Google had a non-U.S. average income tax rate of 2.9 percent while eBay Inc.’s bill over the period was 3.1 percent, according to a Reuters analysis of company filings.

But Yahoo, which has struggled to grow revenues and profit in recent years amid strong competition from Google, has one of the higher tax rates in the sector.

Between 2009 and 2012, its overseas income tax rate averaged 27 percent.

It’s not clear why Yahoo has a higher tax rate but tax advisers say the bigger a company’s profits, the greater the opportunities for tax optimization. The company declined to answer questions about its tax arrangements. Google and eBay said they comply with all tax rules.

Yahoo’s new structure echoes that employed by Google, whose European customers pay money direct to Google Ireland Limited.

This company sends most of its more than 12 billion euros a year in revenues to an affiliate in Bermuda where there is no corporate income tax. The arrangement allows Google to pay effective tax rates far below even the headline Irish tax rate.

Yahoo, which generates most of its revenue from advertising on its websites, said in a statement that the changes in its arrangements were intended to “streamline our operations further”.

“The structure of our business is driven by business needs and we believe it is in the best interest of our users to have Yahoo EMEA provide all services for all users in the region,” it added.

Yahoo said it planned to shut its Rolle office by July. Spokespeople in France and Italy said there would be no changes in the mainly sales and marketing functions conducted in those offices.

DUBLIN OFFICE

Spokeswoman Macleod-Smith said the current Senior Vice President for Europe, Middle East and Africa (EMEA), Dawn Airey, will continue to be based in London.

Yahoo opened a Dublin office in 2003 to provide customer support and technical and other support for other Yahoo units. In March last year, it announced it was hiring 200 new customer and internal support roles but did not announce the new financial structure whereby all sales revenues would be diverted directly to Dublin.

O’Leary declined to name the companies he was trying to lure to Ireland but other highly mobile technology companies whose main European tax base is in Switzerland include travel group Expedia Inc., auction site eBay Inc., Videogames publisher Electronic Arts, domain name manager Verisign Inc. and software groups Salesforce.com Inc, CA Inc, Citrix Systems Inc. and Autodesk Inc.

Electronic Arts said it had no plans to shift its international headquarters from Switzerland. The other companies declined to comments or did not respond to requests for comment. A sales agreement published on Salesforce.com’s website shows that its Swiss unit continues to be the counterparty for European sales.

Noble Corp, owner of the world’s third-largest offshore drilling rig fleet, announced a move from Switzerland to Britain last year, citing Britain’s tax regime which had recently been changed so that overseas profits were largely made exempt from tax.

Lorraine Griffin, tax partner at accountants Deloitte in Dublin, said the G20 effort to tackle corporate tax avoidance could also help to make Dublin more attractive for companies, even though Ireland itself has been branded a tax haven by U.S. and European politicians.

Documents published by the Organisation for Economic Co-operation and Development, the body leading the G20 tax avoidance drive, have said that in future companies should be forced to report profits and revenues where the economic activity which generates the profit takes place.

Credit: Reuters