Man Making Ireland Tax Avoidance Hub Proves Local Hero
Google Inc. (GOOG), Facebook Inc. and LinkedIn Corp. (LNKD) wound up in Ireland because they could reduce their tax bills. Their success is leading European and U.S. politicians to label the country a tax haven that must change its ways.
The grand architect of much of that success: Feargal O’Rourke, the scion of a political dynasty who heads the tax practice at PricewaterhouseCoopers in Ireland. He advises both multinational companies and the government on tax policy and has emerged as his country’s leading defender.
“Under no circumstances is Ireland a tax haven,” O’Rourke said recently at his corner office on the River Liffey in Dublin, a ritual stop for many tech companies in their Irish quest. “I’m a player in this game and we play by the rules.”
In that game, multinational companies find ways to legally avoid income taxes in the countries where most of their customers are. Google cuts billions off its tax bill each year by sending profits through Ireland to a mailbox in Bermuda; Facebook (FB) sends them through Ireland to Grand Cayman; LinkedIn uses Ireland en route to the Isle of Man. O’Rourke advised each company on its arrangements, according to two people familiar with the matter.
He also persuaded regulators to eliminate a withholding tax on profits that corporations move out of the country -- while separately advising his cousin who was finance minister.
Such concessions now expose Ireland to a political backlash. Across Europe, officials have grown increasingly frustrated with corporate tax avoidance as individuals are asked to pay more and sacrifice in the name of austerity. German politicians are urging Ireland, a recipient of international bailouts, to alter the tax system that lured multinationals like Apple Inc. (AAPL) and Google. The European Union is even probing Ireland’s corporate tax deals.
Cracking down on tax avoidance by multinational companies has emerged as a priority for the Group of 20 nations and the European Commission. It costs the U.S. and Europe at least $100 billion a year, with O’Rourke’s clients among the biggest beneficiaries.
The lost revenue “has to be made up by you and me and every other taxpayer who can’t afford high-flying attorneys and accountants to shift our income into places with low taxes,” said Robert B. Reich, a professor of public policy at the University of California at Berkeley, and former labor secretary in the Clinton administration.
While Ireland recently announced plans for a modest tightening of its corporate tax rules in response to the criticism, the country remains highly attractive to multinationals as a way station for their profits.
O’Rourke and other accountants like him “think up these tax strategies and the impact is tens of billions in lost tax revenue in Europe, the U.S. and less-developed countries,” said Jim Stewart, an associate professor of finance at Trinity College’s school of business in Dublin. “He’s a very aggressive leader of the tax-avoidance industry here.”
O’Rourke often speaks loudly and excitedly, gesturing with his hands, yet is careful not to let disagreements turn into arguments. He said the finger-pointing at Ireland and at his profession is misdirected, and politicians around the world complaining about tax avoidance have only themselves to blame.
“Why should Ireland be the policeman for the U.S.?” he asks. “They can change the law” -- he snaps his fingers -- “like that! I could draft a bill for them in an hour.”
O’Rourke rebuffed entreaties to enter politics early in his career after getting degrees in commerce and accounting. He made partner at PWC in 1996, just as a U.S.-driven tech boom was transforming Ireland. The son of Mary O’Rourke, perhaps the country’s best-known female politician, he sees himself as also serving the public good, attracting foreign investment and high-paying jobs. U.S. multinational companies employ about 100,000 people in Ireland. He jousts with critics on Twitter Inc. (TWTR) (another client), radio and newspaper op-ed pages.
“I like selling Ireland,” said O’Rourke, 49, who has bright blue eyes and a bushy mane of black hair tinged with flecks of white. “We have a lot to offer.”
O’Rourke has pursued this mission with vigor. Over the years, he has pushed for regulatory changes to help cut his clients’ tax bills and advised the Irish government on tax policy. He was instrumental in creating an Irish tax-credit program that subsidizes the research of companies like Intel Corp. (INTC) -- another client.
O’Rourke declined to discuss his clients. His roster was confirmed by people outside the firm who are familiar with his practice.
Paul Haran, a former Irish government official who introduced major elements of Ireland’s corporate tax system, said he often consulted O’Rourke.
“I’d naturally pick up the phone and ask him,” Haran said, about “tax and how it operates in the real world.”
An annual ritual has long showcased O’Rourke. Since the mid-1990s, the Irish finance minister has given several hundred business leaders an overview of the new government budget at a PWC-sponsored breakfast at one of Dublin’s top hotels. For years, that was Charlie McCreevy, a top politician in the Fianna Fail party, who would then turn over the proceedings to the real expert on the budget’s key tax provisions: O’Rourke.
“I used to use him to get advice on technical tax issues and he’d give that advice freely,” said McCreevy, the country’s finance minister from 1997 to 2004.
O’Rourke sees no conflict in his dual roles representing private industry and advising the government on issues that benefit his clients. Just having a pipeline to the government doesn’t guarantee results.
“Advisers advise, ministers decide,” he said.
Attracting foreign companies has been integral to Ireland’s economic success. It boomed in the 1990s as companies like Apple, Intel, Dell Inc. and Microsoft Corp. (MSFT) took advantage of its cheap and educated workforce. U.S. multinationals doubled their employment of Irish workers and helped cut Ireland’s unemployment rate to less than 4 percent from almost 14 percent.
After the tech bubble burst in 2000, Ireland morphed from a vigorous economy into a tax haven with slower job growth, said Stephen Kinsella, an economics lecturer at the University of Limerick’s business school.
Ireland’s transformation into a hub for tax avoidance can be seen in U.S. Commerce Department data. In 2010, U.S. companies attributed $95 billion in profits to Irish subsidiaries, up more than sevenfold from $13 billion in 2000. Actual employment at those units barely grew during that decade, and the companies’ reported tax rate plummeted to 3 percent from 9 percent.
Many of the Irish subsidiaries have no offices or employees and pay no income taxes. They are merely ways to move profits out of countries where sales take place to mailbox subsidiaries in zero-tax island havens.
“What we celebrate is that we attract more foreign direct investment than anyone else in the world,” Kinsella said. “What we don’t celebrate is that we deliberately turn a blind eye to companies using tax loopholes that we are probably aware of to avoid tens of billions in taxes around the world.”
O’Rourke’s office on the second floor of the PWC building features photos of him with Muhammad Ali and Bill Clinton. Obsessed with U.S. politics, he’s read every presidential autobiography since Truman, and all of Robert A. Caro’s four-part Lyndon B. Johnson biography. He identifies himself as a “JFK Democrat or a Rockefeller Republican.”
At PWC, O’Rourke oversees a staff of 500 tax accountants and lawyers, including teams stationed in San Francisco, San Jose, New York and London. He has an apartment he rents out in the south of France, near Cannes, and lives with his wife and two children in a suburban Dublin house that was listed recently for almost 1.4 million euros ($1.9 million). The house is no longer on the market.
The O’Rourke client whose tax strategies have attracted the most attention is Google, based in Mountain View, California. It uses an elaborate structure that routes its European sales through a subsidiary in Dublin. The unit in turn pays billions in royalties to another Irish company for the rights to Google’s various patents.
Because the second unit is managed in Bermuda, it isn’t “tax resident” in Ireland and thus doesn’t owe Irish taxes. This technique, known as a “Double Irish,” results in the majority of Google’s worldwide profits avoiding income tax anywhere in the world and reduced the company’s worldwide income tax bill by $2.2 billion last year.
For years, Irish tax policy impelled Google to take one extra step. If those payments from the Irish unit went directly to Bermuda, they were subject to an Irish withholding tax, because Ireland doesn’t have a tax treaty with Bermuda. So Google, like some other companies, has avoided the 20 percent withholding tax by moving those payments through a unit in the Netherlands, a tactic known as a “Dutch Sandwich.”
O’Rourke set out to simplify those structures, eliminating the need for a Dutch intermediary.
In October 2007, he met at Google’s Dublin headquarters on Barrow Street with Tadhg O’Connell, the head of the Irish Revenue division that audits tech companies, according to a person familiar with the meeting.
O’Connell rejected O’Rourke’s request that royalties like Google’s should be able to flow directly to units in Bermuda and Cayman without being taxed. O’Connell, who left the Irish Revenue earlier this year to work for Deloitte, a competitor to O’Rourke’s firm, declined to comment. A Google spokesman declined to comment.
In 2008, O’Rourke’s cousin Brian Lenihan Jr. became the country’s finance minister, setting policy for the Irish Revenue office. Two years later, after continued entreaties by O’Rourke, the revenue office announced that it would no longer impose withholding taxes on such transactions.
“We take the view that if there is valuable intellectual property outside of Ireland, it’s not reasonable for us to jump on that,” said Eamonn O’Dea, who now oversees the corporate, business and international division of the Revenue Office.
While acknowledging he considered himself an adviser to his cousin -- who died of cancer in 2011 -- O’Rourke said they never discussed the withholding tax and it didn’t come under the finance ministry’s purview. He didn’t want to be accused of exploiting his family ties to benefit clients, he said.
“I have been extraordinarily careful over the years to ensure that no one could ever make a valid criticism of me that I got to where I am because of my family background,” he said.
On a crisp September afternoon, O’Rourke joined his mother for lunch at the Hodson Bay Hotel in Athlone, the working-class town on the River Shannon where he grew up. The daughter of an Irish tax inspector and businessman who once owned the hotel, Mary O’Rourke served almost 30 years in Parliament for Fianna Fail and held three cabinet positions.
Over bacon, lettuce and tomato sandwiches, Mary spoke in a way that suggested her view of Ireland’s best economic interest doesn’t always mirror her son’s. She complained that the Irish banks had pared their lending since the financial crisis.
“The banks are telling lies like they always did,” she said, evoking the populist rage that helped make her folksy 2012 autobiography, “Just Mary,” an Irish bestseller. Her son, whose firm advises major banks, remained silent.
After lunch, he drove to the village of Ballynahown. There he parked his silver Mercedes Benz outside a church where more than 30 years earlier he had campaigned for his mother after Sunday Mass. A nervous 17-year-old, O’Rourke had perched precariously on a chair and shouted into a bullhorn connected to loudspeakers on a car’s roof, exhorting residents to support her first run for Irish Parliament. He coined her slogan: “A strong voice for you and a strong voice for your area.”
His father, Enda O’Rourke, ran a midsized oil distribution company, where Feargal helped dispatch trucks to deliver heating oil. The elder O’Rourke, who died in 2001, was also president of the local amateur rugby club, meaning Feargal spent his childhood helping set up the pitch and pick up dirty jerseys in the locker room after a match. He has a collection of Rugby team match programs dating back to 1888 --more than 2,000 -- in leather-bound volumes in his suburban Dublin home.
In Parliament, Mary O’Rourke joined her brother, Brian Lenihan, who would later become the country’s deputy prime minister. She became minister of education, then health, then public enterprise. (In Ireland, only Parliament members serve as cabinet ministers; they then serve in both positions simultaneously.) Meanwhile, two of Lenihan’s sons -- O’Rourke’s cousins -- would be elected to Parliament, including Brian Lenihan Jr., the future minister for finance.
Feargal O’Rourke also won wide political favor. In 1998, the deputy prime minister from the opposing party appointed him to a position with Forfas, a state policy body to promote science and technology. There, O’Rourke recommended the government create a generous system of tax credits for research and development spending, he said. That credit benefits his clients, including one in particular: Intel, the semiconductor maker based in Santa Clara, California.
The program -- which allows companies to claim a tax credit at double the normal Irish tax rate for research expenses -- cost the Irish government 250 million euros in 2011. That’s equivalent to about 7 percent of the 3.5 billion euros in corporate income taxes that Ireland collected that year.
The program was “the right thing for Ireland,” said O’Rourke, who declined pay for his service on the Forfas board.
Intel, which employs about 5,200 people in Ireland, has “consistently supported these types” of tax credits worldwide, spokesman Chuck Mulloy said.
Earlier this year, Ireland’s Department of Finance announced a review of the credit program “to ensure the credit represents value for money for the Irish taxpayer.” Last month, the Irish Times reported the research tax credits were being improperly claimed in 80 percent of the cases examined in a government audit.
In 2012, the “Big Four” accounting firms reported almost $25 billion in worldwide revenue from tax advising. Like PWC, the others have large tax practices in Dublin. O’Rourke’s competitors include KPMG veteran Adrian Crawford, who shuttles between the firm’s midtown Manhattan office and Dublin, and has advised clients like Microsoft, which has accumulated about $76 billion in offshore profits.
At Ernst & Young, a former Irish revenue official named Joe Bollard has advised Forest Laboratories Inc. (FRX), maker of blockbuster antidepressant Lexapro, which has moved billions of dollars in profits through Ireland to a Bermuda mailbox.
Four times a year, O’Rourke makes weeklong barnstorming tours to the West Coast. He recently touched down in San Francisco after a 16-hour trip, and visited Facebook and Twitter, according to his social media postings.
Along the way, he promoted investing in Ireland to prospective clients. He is often accompanied on such visits by locally stationed Irish Development Agency officials.
“There’s a real vitality, a real buzz in the U.S.,” said O’Rourke, who is immersed in U.S. popular culture and considers Breaking Bad one of the best television shows ever.
“It is the era of the antihero,” O’Rourke said of the main character, Walter White, who makes and loses millions cooking methamphetamine. “I don’t know what it says that we can be rooting for a guy on the dark side of the law.”
On Sept. 12, the morning after the Financial Times reported that the European Union was probing Ireland’s tax practices, O’Rourke appeared on a popular Irish radio show, jousting with Richard Murphy, a U.K. tax accountant and blogger.
“There’s been a lot of guff talked out there about Ireland being a tax haven,” said O’Rourke. When the EU inquiries are done, “Ireland will be found to have not done any tax deals, no matter what way you define them.”
Murphy retorted: “Ireland sells harmful tax practices that undermine the revenues of other countries.”
O’Rourke interrupted: “That’s untrue.”
Their squabbling continued on Twitter until O’Rourke struck a conciliatory note: “Must have you over -- always want our tax people to hear contrary views.”
Even as he promotes his country’s current tax practices, O’Rourke foresees a new order. Changes in Ireland and worldwide are inevitable, he said, primarily because the Organization for Economic Cooperation and Development is targeting tax avoidance. He predicts his country will eventually prohibit companies like Google and Apple from setting up units in Ireland that don’t owe income taxes there.
If O’Rourke’s prediction comes true, the “Double Irish” will disappear from the tax avoidance lexicon. Once it’s gone, he said, paraphrasing Richard Nixon, “You won’t have Ireland to kick around anymore.”
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