Friday, May 24, 2013

Irish claims on French corporate tax are false

Nicolas Sarkozy, when French president, wanted the Irish corporate tax rate raised from 12.5%. The Irish government insisted that effective tax rates (actual tax paid after various allowances, as a ratio of earnings) applied in France were lower than those levied in Ireland - - but this claim is misleading at best and if believed by people who should know better, reveals them to be of out of their depth.

Sarkozy had picked the wrong target given the stories of massive tax avoidance where the effective rate or the actual level of tax is often none.

Taoiseach Enda Kenny, on a panel with other European prime ministers, at the annual meeting of the World Economic Forum in Davos, Switzerland, said last January, that Ireland is not a tax haven for unorthodox practices and Ireland's tax regime is "very clear, very transparent." He also said the effective corporate tax rate was 11.9% compared with the headline rate of 12.5%. One claim was false and the other was very misleading.

Richard Bruton, jobs minister, in early January had also used the 11.9% rate -  - so it was the agreed government number.

This rate has no relevance to big foreign multinationals in Ireland: there is a 25% R&D tax credit, investment allowances and zero tax on patent income.

Do either Kenny or Bruton, or Michael Noonan, finance minister, know that Microsoft disclosed last year that its fiscal year 2011 effective tax rate in Ireland was 5.69%?

The Irish Examiner reported last month: 'France has lower effective tax rate than Ireland: study':

In France the statutory corporate tax rate is 33.3% while the actual effective tax rate is lower than Ireland’s 12.5% at 8.2%.

Feargal O’Rourke, head of tax at PwC Ireland, said the transparency between Ireland’s statutory and effective tax rates were part of why it was attractive to multinational companies.

“Ireland’s transparent tax regime and low corporate tax rate, together with the relative ease to pay tax, is vital in continuing to underpin the positioning of Ireland as a location of choice for foreign direct investment. This transparency and relative ease to pay taxes is an even more important element in providing us with an opportunity to help multinational corporations establish operations in Ireland,” he said.

The claims are based on a global survey by PwC (PricewaterhouseCoopers) and Feargal O'Rourke knows that his multinational clients do not generally have an effective rate close to 12%.

KPMG, another Big 4 accounting firm says that France's standard corporate tax rate in 2013 is 33.33%.

A 3.3% social contribution is levied on the part of the corporate income tax that exceeds €763,000, resulting in an overall maximum tax rate of 34.43%.

In addition, a temporary 5% surtax is levied on the (full) corporate income tax for entities with a sales turnover over € 250 million. This temporary surtax, which brings the overall maximum tax rate to 36.10%, is expected to apply to financial years (closed) from 31 December 2011 until financial years (closed) on 30 December 2015.

Specific categories of income can benefit from a reduced corporate tax rate under conditions. In particular, licensing fees relating to certain IP rights can benefit from a 15% corporate tax rate (respectively 15.5% or 16.245% taking into account the above two surtaxes). Small and medium size companies with a turnover of €7.63 million or less owned at least 75% by individuals (or owned by companies meeting the same conditions) are subject to a corporate income tax rate of 15%. This reduced rate applies to taxable profits up to € 38,120. These small and medium size companies are not subject to the above-mentioned social contribution and temporary surtax.

The 11.9% rate comes from a report, 'Paying Taxes 2013,' that was produced by PwC.

The case study company is a non-exporting SME:

  • A limited liability company;
  • Produces ceramic flower pots and sells them as a retailer;
  • Operates in the country’s largest business city;
  • Is 100% domestically-owned and has five individual owners;
  • Has purchased capital equipment for use in the business;
  • Has 60 employees;
  • Sells a property and realises a capital gain during the year;
  • Pays a dividend at the end of the year;
  • Is in its second year of operation;
  • Has a trading loss brought forward from previous year.

These are a number of other report links that seek to present a Reality Check:

Apple, taxes, Irish economy and creating 200,000 net jobs

EU to force country-by-country tax transparency on big companies

Noonan not transparent on Apple taxes and US Senate report

Apple shifted "golden goose" and 64% of 2011 income to Irish "shell corporation"

Apple has special Irish tax rates; 'Stateless' companies based in Ireland

Irish Economy: No growth in 2012; 6,500 direct jobs account for 52% of services exports

Irish Economy: Sustainable growth dependent on foreign firms since 1990; Now FDI has peaked

Irish Economy: Actual Individual Consumption per capita in Ireland is at EU average along with Italy; Germany at 20% above and UK at 18% - - Irish GDP per capita is 29 % higher than the EU average but that statistic is misleading.

Irish Economy: Pharmaceutical patent cliff no growth threat; High exports have low impact

Irish Economy: Export growth insufficient to pull domestic economy out of recession

Irish Economy 2012: At least a third of value of Irish services exports is overstated

Dell remains Ireland's biggest manufacturing exporter despite closing Limerick plant

Irish Economy 2012: Only 50,000 Irish direct workers responsible for 69% of annual Irish exports

Irish Economy: Innovation, a failed enterprise policy and inconvenient facts for 2013

Thursday, May 23, 2013

Noonan not transparent on Apple taxes and US Senate report

Michael Noonan, Irish finance minister, appears to be taking a leaf from the playbook of Tim Cook, Apple's CEO, who on Tuesday at a US Senate panel hearing took the tack that the best form of defence is attack -- there are no tax gimmicks in a company with an overseas effective corporate tax rate of 2% in 2012 with more than 60% of sales coming from outside the United States; no shifting of intellectual capital to Ireland and so on.

Noonan on Wednesday is reported to have told an Oireachtas finance committee meeting that Ireland was a “transparent, tax compliant country” - - the word transparent is from 'taking points' drawn up for ministers but like Tim Cook's understanding of what a 'gimmick' means, what the minister really thinks it means is unknown.

Noonan needs to be more transparent himself as revenues received by an Irish company, Apple Sales International, which is neither tax resident in Ireland or the US,were the subject of taxes in Ireland and these billions in invoicing are likely booked as Irish services exports by the Central Statistics Office.

Apple, taxes, Irish economy and creating 200,000 net jobs- -  Finfacts report on implications for Irish economy

The Merriam-Webster dictionary has a definition of transparent that is appropriate in this context: "characterized by visibility or accessibility of information especially concerning business practices."

The biggest companies operating in the country can keep all their financial information inaccessible to public view and this is part of a transparent system!!

Apple's accounts have been shielded from public view since 2006. Intel and Pfizer do not publish accounts in Ireland as they are branch operations of Cayman Islands and Dutch firms.

Noonan said Apple paid 12.5% on all the profits the company made in Ireland, “and that’s the only liability they have in Ireland.”

Who can check that this is correct?

Here he is suggesting that on local Apple sales in Ireland, it paid the full 12.5% rate on its profits - -  no capital allowances at all? Looks dodgy Mr Minister -- because these are utilised by other units in Cork? How could that be?

It's Apple that made the statement about the low tax deal to the US Senate panel; so let them clarify their statement.

Noonan said the stateless/ ghost Apple companies that were registered in Cork were neither tax resident in the US nor tax resident in Ireland, and “because they are not tax resident in Ireland they’re not liable to Irish tax”.

However, one of the ghost companies, Apple Sales International, receives billions in income from overseas and pays tax, even though low, in Ireland? 

The Senate Permanent Subcommittee on Investigations says in its report [pdf]::

"In 2012, as a result of Apple’s restructuring of its Irish subsidiaries, ASI was assigned 250 employees who used to work for its parent, AOE (Apple Operations Europe).Despite acquiring those new employees, ASI maintains that its management and control is located outside of Ireland and continues to claim it has no tax residency in either Ireland or the United States.

Despite its position that it is not a tax resident of Ireland, ASI has filed a corporate tax return related to its operating presence in that country. As shown in an earlier chart, ASI has paid minimal taxes on its income. In 2011, for example, ASI paid $10 million in global taxes on $22 billion in income; in 2010, ASI paid $7 million in taxes on $12 billion in income. Those Irish tax payments are so low relative to ASI’s income, they raise questions about whether ASI is declaring on its Irish tax returns the full amount of income it has received from other Apple affiliates or whether, due to its non-tax resident status in Ireland, ASI has declared only the income related to its sales to Irish customers. Over the four year period, 2009 to 2012, ASI’s income, as explained below, totaled about $74 billion, a portion of which ASI transferred via dividends to its parent, Apple Operations Europe. ASI, which claims to have no tax residence anywhere, has paid little or no taxes to any national government on that income of $74 billion.

According to Apple, for the last ten years, this special corporate income tax rate has been 2 percent or less: 'Since the early 1990’s, the Government of Ireland has calculated Apple’s taxable income in such a way as to produce an effective rate in the low single digits …. The rate has varied from year to year, but since 2003 has been 2% or less.'”

So which Apple company employs the staff that provide services across the globe?

The issue of global services which then become services exports is also relevant here - -  see Finfacts report above on how revenues diverted from other countries become Irish services exports. We estimate that over €40bn of Irish services exports may be fake.

Michael Noonan has claimed that the surge in services exports is not tax related but the result of improved competitiveness, when the facts suggest it's a result of tax-related diversions of revenues.

Since March, I have been seeking a response via Brian Meenan, a press officer in the Department of Finance on the following. However, Meenan does not even acknowledge e-mails -- the worst performance of any press office I had to deal with in the public sector.

Transparency Minister?


[Minister Noonan said at a Bloomberg event in London last month (February):

"The services sector is playing an increasingly significant role in export growth, having grown by 9.4% over the first three quarters in 2012, and now exceed the level of goods exports by just over a billion euro. This owes much to the significant price and cost adjustments that have taken place in recent years."

The Medium-Term Fiscal Statement Nov 2012, Page 6 said:

"Support for overall activity is coming from the exporting sectors, with services exports becoming an increasingly important engine of growth in recent quarters. This, in no small part, reflects the improvements in price and cost competitiveness that have been evident since the onset of the crisis."

As the CSO confirmed last week that 'computer services' grew by 15% in 2012, can the Department confirm that this development is mainly due to cost competitiveness issues?

I raise this issue because it appears that these claims are false and in the aftermath of the economic crash, it's important that departmental positions are credible. Simply, our research shows that price and cost competitiveness are not crucial issues.

Has the policy of some foreign-owned services multinationals in centralising end-user revenue bookings from other jurisdictions in Ireland any impact on the services export performance?

I do not seek any comment on individual companies.

In the past year:

  • The House of Commons has published a report including testimony on Google's policy on booking revenues in Ireland;
  • Microsoft submitted information on its tax strategy to the US Senate's Permanent Subcommittee on Investigations;
  • Facebook in a pre-IPO SEC filing said its principal global tax jurisdictions are the US and Ireland.]

Monday, May 20, 2013

Irish establishment elite wins again: NAMA Wine Lake to close

NAMA Wine Lake, the blog that has tracked NAMA – National Asset Management Agency - since Ireland's bad bank was created in 2009, has closed . It is another win for the establishment elite including the mainstream media.

Citizen activism is very important when the people running the show are generally older men who just some years ago thought that the free lunch had been invented. Today with the support of generous safety nets and the security of the euro, they are making crucial decisions or not, that largely do not impact them.

So best wishes to Jagdip Singh.

That is easy to say even though well meant. However, warm words do not butter parsnips in the modern money economy.

Jagdip Singh provided an important service but no number of consequence would pay for it, no matter how low.. Meanwhile, Tumblr, the blogging platform like WordPress, the host of this site, has been acquired by Yahoo for $1.1bn.

These blogging platforms depend on free content and this model has been compared with the California Gold Rush where most of the money was made by the suppliers of shovels and pickaxes.

Not all citizen activism is good - just think of Nimbies who want to have their cake and eat it.

A stunning example of the success of positive citizen activism was provided at the weekend when Eric Schmidt, Google chairman, conceded that international corporate tax loopholes should be closed. He didn't say what role his paid lobbyists in Washington would have.

Just over two years ago, protesters against tax avoidance, mainly women, from a group called UK Uncut began occupying the high profile retail stores of the Arcadia group such as Topshop, BHS, Burton, Miss Selfridge and Dorothy Perkins, controlled by Sir Philip Green, one of Britain's richest men.

I say controlled because over £1bn in dividends had been extracted from the privately held Arcadia without paying any tax, as the owner of Arcadia was Green's wife - a tax resident of the casino statelet of Monaco.

Dr. Constantin Gurdgiev puts the struggle of outsiders against the Irish establishment elite well:

"I can attest from my own & others' experiences that those of us who run anything independent of the officialdom mouthpieces (regardless of political / ideological orientation or even the lack of one) have near-zero support (moral or citations- and links-wise) from our internal (not to be confused with international) media and all businesses.

Those in our society, including the traditional media, who only benefit from the free analysis and the climate of openness and debate the independent analysts help to create prefer to endlessly endorse and support, including via advertising revenues, cross-links, citations and readership, those who offer no alternative but consensus."

The Irish Times: Timidity in turbulent economic times

Thursday, May 16, 2013

Google's Larry Page: I can run company on phone

In his full remarks at the Google I/O conference Wednesday, Chief Executive Officer Larry Page outlined the company's strategy, addressed his health, and answered audience questions:

Wednesday, May 15, 2013

Google co-founder Larry Page confirms vocal cord paralysis

Larry Page, Google Inc. chief executive, says he has been diagnosed with vocal cord paralysis, which has left his voice softer than before and affected his breathing - -  Wall Street Journal

Page made his disclosure on Google+ on Tuesday.

"About 14 years ago, I got a bad cold, and my voice became hoarse.  At the time I didn’t think much about it.  But my voice never fully recovered.  So I went to a doctor and was diagnosed with left vocal cord paralysis.  This is a nerve problem that causes your left vocal cord to not move properly.  Despite extensive examination, the doctors never identified a cause — though there was speculation of virus-based damage from my cold.  It is quite common in cases like these that a definitive cause is not found.

While this condition never really affected me — other than having a slightly weaker voice than normal which some people think sounded a little funny — it naturally raised questions in my mind about my second vocal cord.  But I was told that sequential paralysis of one vocal cord following another is extremely rare.  

Fast forward to last summer, when the same pattern repeated itself — a cold followed by a hoarse voice. Once again things didn’t fully improve, so I went in for a check-up and was told that my second vocal cord now had limited movement as well. Again, after a thorough examination, the doctors weren’t able to identify a cause.  

Thankfully, after some initial recovery I’m fully able to do all I need to at home and at work, though my voice is softer than before. And giving long monologues is more tedious for me and probably the audience.  But overall over the last year there has been some improvement with people telling me they think I sound better.  Vocal cord nerve issues can also affect your breathing, so my ability to exercise at peak aerobic capacity is somewhat reduced.  That said, my friends still think I have way more stamina than them when we go kitesurfing!  And Sergey says I’m probably a better CEO because I choose my words more carefully.  So surprisingly, overall I am feeling very lucky.

Interestingly, while the nerves for your vocal cords take quite different routes through your body, they both pass your thyroid.  So in searching for a cause for both nerves that was an obvious place to look. I was diagnosed with Hashimoto's thyroiditis in 2003.  This is a fairly common benign inflammatory condition of the thyroid which causes me no problems.  It is unclear if this is a factor in the vocal cord condition, or whether both conditions were triggered by a virus.

In this journey I have learned a lot more about voice issues.  Though my condition seems to be very rare, there are a significant number of people who develop issues with one vocal nerve.  In seeing different specialists, I met one doctor — Dr. Steven Zeitels from the Harvard Medical School and the Massachusetts General Hospital Voice Center — who is really excited about the potential to improve vocal cord nerve function.  So I’ve arranged to fund a significant research program through the Voice Health Institute, which he will lead.  Thanks a bunch to my amazing wife Lucy, for her companionship through this journey and for helping oversee this project and get it off the ground.  Also, thanks to the many people who have helped with advice and information many of whom I have not had a chance to thank yet."

Wednesday, May 08, 2013

Apple's top 25 paid apps and the app economy

How big of a money maker are apps? What country's GDP is the size of the global app economy? How does app use compare to TV in terms of time spent per day? Wall Street Journal's Jason Bellini has answers:

New York Times: As Boom Lures App Creators, Tough Part Is Making a Living

Apple's ranking of the top 25 most-downloaded paid apps (see below), games dominate the list, led by ”Angry Birds.” Three other versions of the popular game from Rovio of Finland are in the top 25. In fact, the first five in the ranking are all games, including “Fruit Ninja,” “Doodle Jump,” and “Cut the Rope.”

That changes at No. 6 with WhatsApp, one of the most popular messaging apps in the world at 99 cents.

Canalys, a US research firm said in April that research covering the leading app stores in more than 50 countries, shows healthy growth in the download and purchase of apps on mobile devices in what is now a maturing market. App downloads across the four stores – Apple’s App Store, Google Play, the Windows Phone Store and BlackBerry World – climbed 11% in Q1 2013 worldwide over the Q4 2012 total, while direct revenue from paid-for apps, in-app purchases and subscriptions combined grew by a slightly more modest 9%. Combined, downloads from the stores totaled more than 13.4 billion, and revenue reached $2.2 billion (before revenue sharing is taken into account).

Canalys said last December that a small number of developers, almost entirely game companies, continue to generate the majority of revenue at the leading app stores - Apple’s App Store (iPhone only) and Google Play. Based on daily App Interrogator surveys, Canalys estimated that just 25 developers accounted for 50% of app revenue in the US in these stores during the first 20 days of November 2012. Between them, they made $60 million from paid-for downloads and in-app purchases over this period.

Of the top 25 earning apps' developers, all but for one exception (popular music service Pandora with its Pandora Radio app) are game developers. They include cross-platform game developers as well as mobile game specialists, and include Zynga, Electronic Arts, Disney, Kabam, Rovio, Glu, Gameloft and Storm8’s TeamLava. ‘Part of the story here is that successful game developers almost invariably have multiple titles generating revenue,’ said Canalys VP and Principal Analyst Chris Jones. ‘Zynga, for example, had 15 titles in the list of top 300 grossing iPhone apps on average in Apple’s App Store every day, and nine titles in the equivalent list in the Google Play store.

Here’s the list of the most-downloaded paid iPhone apps:

  1. Angry Birds
  2. Fruit Ninja
  3. Doodle Jump
  4. Cut the Rope
  5. Angry Birds Seasons
  6. WhatsApp
  7. Camera+
  8. Words With Friends
  9. Tiny Wings
  10. Angry Birds Space
  11. Pocket God
  12. Plants vs. Zombies
  13. The Game of Life
  14. The Omoron Test
  15. Where’s My Water?
  16. Draw Something (Premium)
  17. Monopoly
  18. Angry Birds Star Wars
  19. MotionX GPS Drive
  20. Skee-Ball
  21. Scrabble
  22. Uno
  23. Minecraft – Pocket Edition
  24. Color Splash
  25. The Sims 3

The Milliken Institute held a panel discussion on teh app economy in April 2013 - - scroll through to about 6:40 minutes to get to the start of the video.

Though the most popular smart phone activity may be flinging kamikaze birds across a small screen, mobile apps mean big business -- even for small businesses. Navigation has become social, with programs showing up-to-the-second data about your drive from Tucson to Toledo. We can now exchange business cards with a quick phone bump. We can board jets and enter theaters ticketlessly - and manage our health through monitoring devices that connect to electronic medical records. Demand seems insatiable, and many developers, designers, and marketers are well-rewarded. Apple has reported more than 40 billion app downloads, covering 775,000 programs on the App Store alone, and those developers have been paid, in aggregate, more than $7 billion. About 500,000 jobs have been created in a field that didn't exist five years ago. This is the new apps economy. It's global, it's social, it's empowering a new generation of entrepreneurs and it's changing the way we do business.

Wednesday, May 01, 2013

Ireland and Big Pharma's patent cliff

The Irish manufacturing sector moved further into contractionary territory during April, with output and new orders each declining for the second month running amid signs of deteriorating economic conditions. 

The mainly US-owned pharmaceutical and medical devices sector accounts for about 60% of merchandise exports and drug patent expirations are clearly having an impact.

On the patent cliff, a problem for Big Pharma is that high spending on R&D has been producing low returns over the past decade. The majority of sales for the world's leading pharmaceutical companies are derived from the most mature drugs, with the top three drugs for a company on average contributing 44% of total sales. The testing thresholds have increased overtime with new knowledge and litigation fears.

The patent period of 20 years for non-biotech drugs after testing etc can be about 10 years.

Pfizer's Lipitor had peak annual sales of $13bn -- a world record - - and it's hard to replace that level of revenue. Alzheimer's is a huge opportunity and the monetary cost of dementia in the United States ranges from $157bn to $215bn annually, making the disease more costly to the nation than either heart disease or cancer. In coming years, it will 'swamp' the US healthcare system according to one expert.

While approvals increased in 2011, in 2010, the US Food and Drug Administration's (FDA) drugs division approved just 21 novel medicines -- less than half the level seen in 1996 and 1997.

Roughly the same number of drugs was approved by the FDA in 2008 as were approved in 1950. 

Between 2010 and 2015 products with sales of more than $142bn will face copycat competition -- from total sales in excess of $800bn.

Deutsche Bank has said that the top seven European firms spent $161bn in R&D during 2007-11 to produce drugs with a net present value of just $86bn.

About 7,000 diseases affect the human family, but only 600 have treatments. Fewer than 3% of rare diseases have an FDA approved treatment, yet one in ten Americans is affected by a rare disease.

Irish Economy: Pharmaceutical patent cliff no growth threat; High exports have low impact