Google's withdrawal from Irish tax scheme casts cloud over government finance

Foreign nationals moved more than $106bn of corporate profits to Ireland in 2015, according to a study

Google parent Alphabet boosted the salary of newly anointed chief Sundar Pichai and promised more than $200 million in shares if the company hits performance goals, a regulatory filing on December 20, 2019 said. AFPShow less

Google has turned its back on Ireland's favourable corporate tax regime and brought its intellectual property ownership and licensing structures back onshore in response to US tax law changes introduced in 2017.

For more than ten years Dutch, Irish and US legislation meant Google and other multinational giants enjoyed an effective tax rate in the single digits on non-US profits – roughly a quarter the amounts paid elsewhere. However, Google has said its effective global tax rate over the past decade has been over 23 per cent because more than 80 per cent of its tax is paid in the US.

Although the lower taxes paid by technology companies has been a useful source of revenue for the Irish government, it began phasing out the controversial tax advantage for Google amid pressure from the EU and the US in 2014, ending it completely this year. Critics said Ireland had become a dumping ground for multinationals' tax avoidance policies. Ireland’s corporation tax receipts allowed the government to post an annual fiscal surplus in its most recent budget in December.

President Donald Trump made changes to US tax policies in 2017 which lessened the incentive for US companies to hoard foreign profits offshore. Council on Foreign Relations expert Brad Setser wrote last month that the new US code was eliminating distortions in foreign direct investment statistics. “The FDI data often tells us more about the tax code than anything about the relative attractiveness of a country for 'real' investment,” he noted.

Ian Talbot, chief executive of Chambers Ireland, said last year that “Ireland has used tax policy as a vital tool for economic development since 1956”.

“As a small, open island at the edge of Europe it remains important that we retain some independent tools for competitiveness,” he added.

But the European Union argued that its growth and competitiveness as well as fiscal fairness have been damaged by the policy.

According to research by the University of California, Berkeley and the University of Copenhagen, foreign multinationals moved $106bn (Dh389.3bn) of corporate profits to Ireland in 2015.

“A date of termination of the company’s licensing activities has not yet been confirmed by senior leadership, however management expects that this termination will take place as of 31 December 2019 or during 2020,” said a Google filing with the Dutch Chamber of Commerce seen by Reuters.

“Consequently, the company’s turnover and associated expense base generated from licensing activities will discontinue as of this date,” the filing added.

According to Chris Sanchirico, a law professor from the University of Pennsylvania, major companies like Google are still likely to be able to find ways around the new legislation.

"Based on what we have been able to see in the past, there is no reason to think that planning [by multinationals] hasn't already evolved several generations beyond the kind of classic 'Double Irish' that is now officially coming to an end," he told the Financial Times.

In 2016 the EU found that Ireland had granted undue tax benefits worth €13 billion to tech giant Apple.

“In fact, this selective treatment allowed Apple to pay an effective corporate tax rate of 1 per cent on its European profits in 2003 down to 0.005 per cent in 2014,” the EU said at the time.

The EU submitted a demand to Apple to repay the additional benefits, which Apple has challenged in the the General Court, Europe's second-highest court.