US senators say questions on Apple tax issue remain

Senator John McCain said Ireland still faces questions on how corporations use the country to lower taxes after Michael Noonan, the finance minister, moved to calm tensions triggered by Apple’s practices.

Mr Noonan laid out plans yesterday to scrap a measure in allowing firms registered in the country to be “stateless” in terms of tax residency.

This may enable companies to channel worldwide profits through their Irish-incorporated company and not have a tax liability anywhere, Mr Noonan told reporters. He said “not very many” firms other than Apple do this.

While Apple has said it does not use “tax gimmicks”, McCain and fellow senator Carl Levin labelled Ireland a tax haven in hearings in March. Apple reduced its tax bill by setting up a unit in Cork, which didn’t declare tax residency in Ireland because it’s neither managed nor controlled in the country, according to Senate hearings. As the unit is incorporated in Ireland, it is not US tax resident.

Mr Noonan’s move “is encouraging”, Arizona Republican McCain and Levin, said in a statement.

“Important questions do remain, however, including whether the new rules will continue to allow Irish subsidiaries to dodge taxes by, for example, excluding substantial income” from Ireland’s 12.5% corporate tax rate, they said.

While the proposal targets firms like Apple using Irish subsidiaries that don’t declare a tax residence anywhere, many US multinational companies rely on Irish subsidiaries that claim to be “tax resident” in zero or low tax jurisdictions — which accomplishes the same savings.

Google last year cut $2.2bn (€1.62bn) off its tax bill by paying royalties to an Irish unit that it said is headquartered in Bermuda. Mr Noonan’s announcement would not affect that structure.

“We know that Irish corporate tax law came under scrutiny in a number of inquiries recently. We don’t want to incur any reputational damage,” he said. The nation remained committed to its 12.5% company tax rate, he said.

“Ireland wants to be tax compliant and not seen as some haven for tax avoidance,” said Merrion economist Alan McQuaid.

“The fact that the corporate tax rate itself hasn’t been touched is the main thing and that should help to keep attracting foreign direct investment in the next few years.”