Corporate Tax: Apple, Google, Dr Dre & Ireland’s continuing stateless companies
Corporate Tax Avoidance: Last week the news that Apple is considering buying Beats Electronics, a maker of expensive headphones that was founded by record mogul Jimmy Iovine and rap artist Dr Dre, for $3.2bn, got a lot of media attention. Dr Dre must have pissed-off Apple when he bragged on video about becoming the “first billionaire in hip-hop” as the hyper-secretive hunter had not concluded the deal while market analysts were largely sceptical. In Ireland Dr Dre had got attention in 2012 when Beats’ international holding company was established in a virtual sense in the coastal town of Clonakilty in southwest Ireland with the tax residency in the British island of Jersey. It has since moved to Dublin where there is expertise to maintain tax-dodging Irish offshore companies as stateless despite an apparent legislative attempt to end this loophole in Irish law late last year.
We reported last Friday that Beats Electronics Holding Limited had revenues of $1724m in 2012 and profit before tax of $8,2m.
It paid the Irish Revenue $537,563 in tax even though its presence in Ireland is only as a mailbox company.
In May 2013, the US Senate’s Permanent Subcommittee on Investigations revealed how Apple was using Irish offshore companies that it considered as ‘stateless’ — not obliged to report to any tax authority in the world — to route much of its overseas income through tax-free.
Ireland said last October that a provision in a Finance Bill was designed to close the ‘stateless’ loophole but it didn’t impact the Irish companies in West Atlantic tax havens that are part of the ‘Double Irish Dutch Sandwich’ tax-dodging scheme.
Tax residency of Irish offshore companies depends on where the companies are “managed and controlled” — this is usually a fiction as the Irish companies of Microsoft and Google in Bermuda, Facebook in the Cayman Islands, Apple in the British Virgin Islands or Beats electronics in Jersey,
Apple presented its Irish offshore companies with Apple in teh name as normal Irish companies with addresses at its Irish operational headquarters in Cork.
Seamus Coffey, an economist at University College Cork, says Google Ireland Holdings (GIH), an Irish company, is not resident in Ireland because it is not managed and controlled in Ireland. “However, nor can GIH be resident in Bermuda because it is not incorporated there. GIH is ‘stateless’ but instead of doing it in Cupertino, California as Apple did with Apple Sales International, Google is doing it in Hamilton, Bermuda. In reality, Google is doing it in Mountain View, California but unlike Apple goes to the limited effort of having a brass-plate operation in Bermuda and maybe the odd board meeting and AGM there. Apple may not have to do likewise.”
Coffey argues here that despite the amendment to the Irish law last year to ensure that an Irish offshore company should be tax resident somewhere, stateless Irish companies continue to exist.
OECD BEPS Project: Ireland should embrace corporate tax reform — including how Apple and rappers like Dr Dre are able to benefit from Ireland’s tax regime.