Congress to scrutinize Irish profits

While a number of U.S. firms like Microsoft, Google and Intel have set up substantial operations employing thousands in Ireland, a number of others have established what some are terming “brass-plate” operations with a handful of staff simply to benefit from Ireland’s corporation tax rate of 12.5 percent and avoid the 35 percent rate in the U.S.
According to the Irish Times, Californian company SanDisk funneled revenues of $955 million and booked a profit of $106 million through an Irish operation, just eight months after starting business in Ireland in April 2005.
The company, which makes memory chips for digital cameras and MP3 players moved its European headquarters from the Netherlands to Swords in County Dublin at a cost of around $500,000.
Within months, half the firm’s total revenues of $2.3 million were flowing through its Irish operation, along with over a quarter of its overall net profit of $386 million.
One Irish-based subsidiary, SanDisk Manufacturing — which accounted for the majority of its revenues — had around four staff but no direct employees in Ireland. Another subsidiary, SanDisk International, which accounted for $475 million in revenues, employed eight people in Ireland. SanDisk now has 35 employees in Ireland.
The firm says openly that Ireland’s favorable tax regime was a motivating factor in the move, adding it plans to route around $1 billion through its Irish operation in 2007. It also cited however the availability of skilled multi-lingual staff as another factor in coming to Ireland.
SanDisk’s Hugh Connolly told the Irish Times that the use of a “holding company” was standard international practice. Unlike many other U.S. firms, it does not receive any direct grant assistance from the Irish government or state agencies, but can avail legally of Ireland’s preferential tax rate for companies, which is also lower compared to other European Union countries.
Although employing a small number of staff, the company employed big hitters in the financial services world to assist it in its Irish operations. Ireland’s biggest bank AIB is their banker, Ernst and Youngs is auditing, and legal advice is provided by leading Irish law giant A&L Goodbody.
The information on its financial arrangements came to light when it filed accounts as required under Irish law.
Recent law changes in the Republic have improved the conditions for corporations wanting to locate in Ireland. Successive Finance Acts in 2003 and 2004 reduced the taxes a company would pay if it were to sell a subsidiary and for transfers of intellectual property while bringing in tax breaks for research and development.
While companies pay lower tax, the benefits for Ireland come from the flight of corporations paying taxes to the country, boosting domestic tax revenues as well providing some job opportunities.
However, Ireland’s tax regime has prompted scrutiny in the U.S., and several U.S. companies operating in the Republic availed of a U.S. government tax incentive to repatriate billions of dollars in tax for 2004 and 2005 which otherwise might have been paid in Ireland.
Later this week Congress’ Ways and Means Committee will meet with U.S. Treasury Secretary Henry Paulson to discuss tax policy for U.S. corporations with overseas operations. Now with a Democratic majority, the committee is considering ending tax breaks introduced by the Republicans which have been of benefit to multinationals, with some members arguing that these mean a loss to the U.S. economy of $945 billion a year.
“Multinational corporations have got a lot at risk with the new majorities in the House and Senate,” said Texas Congressman Bill Archer. “It has a lot of seductive appeal to say that corporations that are operating overseas are exporting jobs so they should pay more in taxes on overseas income.”
However, big changes would have little seductive appeal to the Irish government, which has set up a de facto tax haven in the Republic, albeit with greater transparency than elsewhere, such as the Cayman Islands. While the Irish public generally associate multinationals locating with Ireland with jobs, there appears little awareness that some companies are merely in it for the money.