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 Intel and Pfizer do not publish accounts in Ireland as they are branch operations of Cayman Islands and Dutch firms.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.]