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McCain Says Questions Remain as Irish Calm Apple Issue

Senator John McCain said Ireland still faces questions on how corporations use the country to lower taxes after Finance Minister Michael Noonan moved to calm a controversy triggered by Apple Inc. (AAPL)’s practices.

Noonan laid out plans yesterday to scrap a measure in allowing companies 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, Noonan told reporters. He said “not very many” firms other than Apple do this.

While Apple has said it doesn’t use “tax gimmicks,” McCain and fellow Senator Carl Levin labeled Ireland a tax haven in hearings in March. Apple, the maker of iPhones and iPads, 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’s not U.S. tax resident.

Noonan’s move “is encouraging,” Arizona Republican McCain and Levin, the Michigan Democrat who leads the U.S. Senate investigations subcommittee, said in a statement late yesterday.

“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 percent corporate tax rate, they said.

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

An e-mail request for comment from Apple through its press office in London wasn’t immediately responded to.

Google Bill

Google last year cut $2.2 billion off its tax bill by paying royalties to an Irish unit that it said is headquartered in Bermuda. The announcement by Noonan would not affect that structure, known as a “Double Irish.”

Yahoo! Inc. (YHOO) has paid royalties to an Irish subsidiary resident in Grand Cayman; LinkedIn Corp. (LNKD) has paid royalties to a subsidiary that is resident in the Isle of Man; anti-virus software maker Symantec Corp. (SYMC) uses one claiming residency on the island of Jersey; and EBay Inc. (EBAY) has managed its tax bill using an Irish subsidiary that declared its tax residence in Luxembourg, corporate filings show.

“We regard reputation as very important,” Noonan said. “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.”

The nation remained committed to its 12.5 percent company tax rate, Noonan said.

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

To contact the reporters on this story: Joe Brennan in Dublin at jbrennan29@bloomberg.net; Donal Griffin in New York at dgriffin10@bloomberg.net

To contact the editor responsible for this story: Edward Evans at eevans3@bloomberg.net

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