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May 27, 2013


Seamus Coffey (@seamuscoffey)

US companies don't have to use Ireland to defer their US tax liability.

US companies cannot avoid incurring the 35% corporation tax liability on their foreign earnings but they can defer actually paying it. Apple has a massive deferred tax liability with the US Treasury on its foreign earnings but has structured it so that the tax is not actually payable until the money is repatriated.

Although everything we heard in the Senate Sub-committee hearing indicates that the money is already in the US - and was never in Ireland. The companies are based in the US, have their small staff in the US, convene their board meetings in the US and hold their massive assets (cash reserves) in the US. Ireland is a strange tax haven for Apple when they don't even send the money here!

And US companies can use lots of countries to take advantage of the loopholes in the US tax code. The recent hearings in the US Congress and UK parliament have shown us that Microsoft use Singapore, Starbucks and Hewlitt-Packard use the Netherlands while Amazon use Luxembourg. And that is only the companies that have been hauled in by politicians. There is lots more, both in Ireland and other countries.

The reason companies use Ireland, Luxembourg, the Netherlands etc suits US companies and the US Treasury. The Treasury charges a 35% tax on foreign earnings but a credit is given for tax paid elsewhere.

The US don't want their companies paying a 30% tax on their foreign earnings in Germany, France etc. because it means there is a much smaller slice for the US to collect. The US want to facilitate the move of US company profits to low-tax environments or even no-tax environments. The difficulty the US faces is not in imposing the liability; it is in collecting the cash. There are exemptions that could be removed from the US tax code to facilitate this. Primary amongst these is the "same country exemption" for Subpart F (or passive) income. There is little sign of that changing any time soon.

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