Irish Tax Law Under Scrutiny After Senate Grills Apple Over Tax Avoidance Scheme; European Leaders Will Address The Issue In Brussels

Ireland has rejected any notion that its tax system is at the center of allegations that Apple Inc. (Nasdaq:AAPL) has used two of its Cork-based subsidiaries to avoid paying $44 billion in taxes since 2009.

"They are not issues which arise from the Irish taxation system," Eamon Gilmore, Ireland’s deputy prime minister, told Ireland’s RTÉ radio on Tuesday as he was headed to Brussels for a meeting of European Union foreign ministers.

The denial comes after the U.S. Senate’s Permanent Subcommittee on Investigation issued a 40-page rebuke of Apple’s tax avoidance strategy late Monday that, among other things, claims the Cupertino, Calif.-based tech giant negotiated a special tax deal with Dublin for two of the company’s major subsidiaries based there: Apple Operations International (AOI) and Apple Sales International (ASI).

AOI, the report alleges, has no tax residency and has paid no corporate taxes in five years. ASI pays a tax in Ireland, but the report claims that in 2011 it paid $10 million on profits of more than $22 billion, giving it an effective rate of 0.05%. Through this alleged deal with the Irish government, Apple has lowered its tax burden for those two significant subsidiaries to less than 2 percent over the past 10 years.

Gilmore says the issue arises “from other jurisdictions.” It’s not clear if he’s referring to the so-called “Double Irish with a Dutch Sandwich” tax-avoidance strategy often employed by multinationals involving transactions between a company’s two Irish-based subsidiaries and a third one in The Netherlands. This is only one of several techniques companies can employ to dramatically reduce paying taxes by exploiting different tax jurisdictions.

Google Inc. (Nasdaq:GOOG), for example, has used its Dublin-based international headquarters to make tax-deductible payments to a Bermuda-based subsidiary through an affiliate based in The Netherlands. In 2011, Google Ireland reported taxable profit of €24 million on €12.5 billion in turnover, according to a CNBC report earlier this year on Europe’s hodge-podge of tax jurisdictions and how corporations exploit them.

Apparently the European Union is starting to pay attention to the issue. The EU’s General Affairs Council that Gilmore is attending in Brussels Tuesday is in preparation for a discussion of the region’s financial framework for 2014 to 2020. On the agenda: addressing tax avoidance schemes.

“The [EU] heads of state or government will focus on effective steps to fight tax evasion and tax fraud as well as tackle aggressive tax planning in order to protect revenues and the effectiveness of tax systems,” said a backgrounder issued Tuesday ahead of the European Council’s planned meeting in June.

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