Google, Apple, Starbucks, Amazon. Four of the biggest commercial names on the planet. But they have in common a less desired association: condemnation of their use of complex corporate structures that reduce tax liabilities. In the case of Google and Apple, both involve Ireland.
Attacks on the corporates have come from politicians on both sides of the Atlantic, including the UK’s Public Accounts Committee (see box) and the US Senate Investigations Committee. A media furore led Starbucks to voluntarily pay £10m in Corporation Tax to the UK Treasury this year and next, hoping to stem the tide of public criticism. There is no sign of other corporates following suit, nor of any changing complex structures involving Ireland.
While the controversy was at its height in May, multinationals with an engagement in Ireland became concerned and “information hungry”, reports Kevin Doyle, partner and international tax co-ordinator for BDO in Ireland. They remain interested. “Our clients need us to stay close to domestic and international developments in relation to tax and transfer pricing debate and to share our insights with them on a timely basis,” he explains.
But it seems multinationals are not over-concerned about reputational damage that might flow from the debate. “Our clients have not expressed such a concern to us,” says Doyle. “Initially there was some concern that Ireland’s reputation could be damaged as there was quite a lot of country bashing coming from certain quarters.
“However, that concern was relatively short-lived as the Department of Finance and the Minister for Finance have been quick to engage with the OECD and their international counterparts in order to ensure that the message is clear: legitimate tax avoidance by multinational corporations in not caused by Irish tax legislation alone and Ireland will not act unilaterally. Our clients know that this is a complex matter, which is being examined globally by politicians as well as tax policy makers and tax advisors.”
Feargal O’Rourke, head of tax for PwC in Dublin, has clients based in the United States, the UK and Central Europe with interests in Ireland. “There is broadly a geographical divide in this debate,” he explains. “In the UK, the whole PAC debate has caused UK tax directors to think about tax in a broader way and they are looking at public perception. But in the US, I think the attitude was basically that politicians should give up sniping. If they want a different outcome they should change the rules to get the different outcome they want. Until then, we will continue to operate by these rules.”
The OECD is acting speedily to propose revised principles of international tax co-operation, tackling avoidance. UK companies are waiting to see those final proposals before deciding what action to take, says O’Rourke. The focus of the OECD’s Action Plan on Base Erosion and Profit Shifting are preventing double non-taxation; closer international co-operation against tax avoidance, stronger rules on controlled foreign companies based offshore and clamping down on the transferring of intangible assets to low tax jurisdictions.
“As the OECD themselves said when in Dublin recently, they are not against tax competition,” points out Doyle. “Ireland is looking to attract FDI in order to generate employment in the first instance. The tax avoidance debate is perhaps being utilised by politicians and others to impact on our attractiveness, so we must seek to ensure the public debate on the matter is informed and balanced.”
There is also the issue of perceived hypocrisy. “On the one hand there is the UK’s Patent Box 10% Corporation Tax rate, on the other hand it is giving out about tax rules in other countries,” argues O’Rourke. “One man’s tax dodge is another man’s tax incentive.”
An eye on the bigger picture is needed, he believes. “What we are seeing is the coincidence of two things. Governments are short of money. That has coincided with 21st Century business models, which allow digital delivery, while we have tax principles that were devised in the early part of the 20th Century. You can now sell into jurisdictions such as the UK without having any physical presence there. That would not have been possible 20 years ago.”
Despite this, ACCA’s head of tax, Chas Roy-Chowdhury, believes the current debate will have a lasting effect on big corporates. “All multinationals will be much more wary in terms of how they will be portrayed in the media,” he says. “I don’t think they believe they are doing anything wrong. Multinationals will operate within the rules, which they have done anyway, but they will be more careful about how they portray themselves.”
Corporates will have to explain their actions better, he says, explaining that if they pay more in tax there will be a cost – higher prices, lower wages, or reduced dividends. “At the end of the day, individuals will be paying the price.” Corporates need to think about how they promote their wider positive economic impacts, in particular through job creation.
Ironically, predicts Aidan Clifford, advisory services manager for ACCA Ireland, the publicity around the corporation tax rates is likely to lead to an increase in demand for tax advice – because more SME s will realise the opportunities for them in careful tax planning. He does not believe that multinationals will look to radically change their structures.
“It was interesting what Starbucks did,” says Clifford, “but I don’t think it did their reputation any good – it merely confirmed in the consumers’ mind that what they were doing was unethical. I can’t see any other company doing it.”
Clifford says the debate on tax anyway has to be kept in proportion – tax is just one factor in investment and structure decisions. “Members report to me that, while Irish tax is important to their company, of more importance is the quality of the local staff, the very robust intellectual property laws in Ireland, the business infrastructure and the ease of doing business.”
On those grounds, Ireland is well placed to remain a location of choice for many multinationals.
The charge against Google
Google had a turnover of $18bn (US) in the UK between 2006 and 2011, yet paid Corporation Tax of just $16m, the UK House of Commons Public Accounts Committee was told. Its chair, Margaret Hodge MP, said: “Google brazenly argued before this committee that its tax arrangements in the UK are defensible and lawful…. The company’s highly contrived tax arrangement has no purpose other than to enable the company to avoid UK corporation tax.” Google insists it is fully compliant with tax legislation in the UK and worldwide, with transactions with UK customers processed through Ireland. “What actually happens is that when people spend money with Google, they spend it on a technology platform that is built globally and that is owned in Ireland,” said Google Vice President Matt Brittin.