It is startling the degree to which major companies are taking advantage of Ireland's low tax status. Ireland is competing to lure intellectual property as well. Link found initially at RGE.
The more traditional form of tax avoidance used by multinationals in the Republic was to manage the accounting so that the most valuable part of their chain of production would show up in the country and be taxed at a low rate. This meant that there was at least some physical production taking place in the country, which would show most of the company's profit (e.g Coca Cola). But now the real action is not in the actual production, but in the intellectual property to software and pharmaceuticals. So Microsoft, for example, structures its operations so that its physical manufacture and sales outlets don't make much money, because they are paying huge licensing fees to company subsidiaries -- and those subsidiaries happen to be located in the Republic. Example:
Round Island One Ltd., has a thin roster of employees but controls more than $16 billion in Microsoft assets. Virtually unknown in Ireland, on paper it has quickly become one of the country's biggest companies, with gross profits of nearly $9 billion in 2004.
Ireland's citizens may not have heard of Round Island One, but they benefit greatly from its presence. Last year the unit handed the government of this small country of four million citizens more than $300 million in taxes ... Microsoft routes the license sales through Ireland and Round Island pays a total of just under $17 million in taxes to about 20 other governments that represent more than 300 million people.
But Microsoft does some real stuff in Ireland, so at least you can drive by one of their facilities and see the buzz of activity at Round Island? Errr.. No:
Round Island's legal address is in the headquarters of a Dublin law firm, Matheson Ormsby Prentice, that advertises its expertise in helping multinational companies use Ireland to shelter income from taxes. It represents other U.S. technology companies including Google Inc., which recently set up an Irish operations center that the firm credits in its SEC filings with reducing its tax rate. A Google spokesman said the company set up in Ireland to be close to its European customers. "Because that business is done outside of the U.S. it is taxed according to international law," he said.
$300 million is pretty good considering demand for national services must pretty be low given that its a shell company. Thus $300 goes pretty much straight to the Irish bottomline. The article also explains why Ireland has beat out other tax havens- mainly because its populated status makes it easier to justify as a legitimate place for a subsidiary's profits.
It helps that those pesky regulations about timely annual reports are enforced in a business-friendly manner:
Round Island ... filed its annual report in Ireland on Oct. 27, some seven months late. When asked, Microsoft attributed the delay to the need to finish routine audits of subsidiaries. In the U.S., such a late filing would require an explanation to regulators and possibly large penalties. In Ireland, regulators don't even ask. The penalty for late filing: $3.60 a day.
Ouch! $3.60 per day. Cut back on the morning coffee.
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