The search for ways to repatriate more profit to the US could well cause dismay in Ireland
THE DAY before Thanksgiving, Americans’ biggest national holiday, the Apple Store on University Avenue in Palo Alto – the store that was in the late Apple founder Steve Jobs’s home neighbourhood – was jammed with people of all ages.
Last time I was here, in the days following Jobs’s death, almost every inch of the front windows of the store was covered in colourful tiny Post-Its on which people had written their personal memorials. Now, they’re gone.
A seasonal gift-giving display fills the windows, and it’s back to business, with iPads and iPhones getting the most attention.
Apple and Jobs continue to percolate high in the news here. Palo Alto freesheet the Daily Postnotes that a new book on Jobs by CNN technology writer Mark Milian highlights how some Apple consumers were startled when Jobs himself made personal calls to customers annoyed by price hikes charged by mobile providers for iPhone use, or for delayed equipment repairs.
One customer recalled getting a call from someone who said, “Hi Scott, this is Steve.”
The bemused customer replied, “Steve Jobs?!” (As you would, when awaiting an Apple repair). “Yeah, I just wanted to apologise for your incredibly long wait. It’s really nobody’s fault. It’s just one of those things.” Scott told him he understood.
Meanwhile, over in the San Francisco Chronicle, Apple's tax declarations were being scrutinised in a report by columnist Kathleen Pender that looked under the hood of US multinationals' tax filings. She explains the minutiae of how many multinationals use Ireland's low tax regime – among others – to manage profits.
As shareholders see one set of accounts and the US Internal Revenue Service sees another, companies can boost the appearance of earnings to shareholders. They do not need to indicate how overseas profits would be diminished once taxed at the full 35 per cent corporate rate, if repatriated to the US.
Apple doesn’t use this accounting technique in quite the same way as many other multinationals, instead apparently booking more expense than it is actually paying. Why? Tax commentators can’t really figure it out and Apple, as is usually the case, wasn’t commenting.
But all of this was a timely topic as by Friday, the Chronicle’s lead front-page story was headlined “Tech titans seek tax break”.
Major US technology firms are lobbying Congress hard to reduce tax charges for repatriating such profits to as low as an ultraslim 5.25 per cent. The sabre they are rattling is to threaten that, otherwise, they will keep that profit abroad and invest it there – pleasant news for Ireland, if that comes to pass.
But don’t expect it to. Historically, such companies just sit on those profits until the next tax holiday rolls around (as they do on a regular basis).
To try to make sure cash doesn’t remain in countries such as Ireland, the report notes that multinationals – including Google, Apple, Oracle and Cisco (all, coincidentally, with significant presence in Ireland) – have bankrolled more than 160 registered lobbyists to pressure Congress.
US multinationals, the article notes, currently have a mind-boggling $1.4 trillion held outside the US. “A rising proportion of it is held in tax havens using innovative tax dodges known as the ‘Dutch Sandwich’ and ‘Double Irish’,” notes the article.
“Tax experts say funnelling foreign earnings through subsidiaries in Ireland, Switzerland, Bermuda and other tax havens by US multinationals is a growing problem.”
It then notes the well publicised report last year by Bloomberg that detailed how Google had saved $3.1 billion in US taxes since 2007, an effective 2.4 per cent tax rate, using those tax schemes.
It also highlights the significant campaign donations made by Valley tech giants Intel, Cisco, HP, Oracle, Google, Apple and National Semiconductor to a handful of the region’s senators and Congressional representatives.
A number of tech companies are partnering some of the pharma multinationals in what they are calling the “Win America” coalition, to try to persuade lawmakers that a tax holiday for them would mean millions of new tech jobs in the US.
But sceptics note that the last time such a “holiday” was on offer – in 2004, under a law sponsored by Bay Area congresswoman and former house speaker Barbara Boxer – “billions of dollars of tax breaks went to a tiny swathe of multinationals concentrated in the technology and pharmaceutical industries”.
Most of that cash went to “dividends, stock buybacks and executive pay, despite express prohibitions”.
Some tech companies, like HP, cut jobs and raised executive pay after the repatriation. The Congressional Research Service has said that, after the tax break, neither US job numbers nor domestic investment got a boost from the tax beneficiaries.
Critics complain that the latest proposed tax holiday – contained in two multinational-friendly Bills, one in the Senate and one in Congress – “would be paid for by the 96 per cent of US companies that don’t use the tax havens”.
Lest anyone think that tax holidays are the pet idea of the Republicans, typically seen as more “big business” friendly, the Bills come from both political camps and are supported by politicians on both sides, often making for some odd ideological bedfellows.
Whatever happens, the Irish Government, especially in the current economic climate, won’t be happy about the State being highlighted as a tax dodge destination for the multinationals, even if a totally legal one. And they’ll be less happy if the Obama administration decides to actually do something to remove this tax jolly – a distinct possibility.
