Is Enda Proud of Our Tax Avoidance Services?

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“I am very proud of the structure that we set up. We did it based on the incentives that the governments offered us to operate,” said Eric Schmidt, Google’s Chairman in an interview in New York.

The Silicon Valley boss went on to suggest that Google would not turn down the opportunity to draw on the big savings allowed under the law in the countries it operates in: “It’s called capitalism. We are proudly capitalistic. I’m not confused about this.”

I wonder if Enda Kenny would state that he is also proud of the incentives his governmnet offers Google to avoid almost all of its Irish corporation tax obligations based on the profits that Google earns per year. Because through Irish law we allow Google to claim that Google Ireland Holdings is not actually Irish but is rather a Bermudian company even though it’s registered and uses secretary services of Matsack Trust Limited, 70 Sir John Rogerson’s Quay, Dublin 2.

From the US tax point of view Google Ireland Holdings doesn’t exist, even though it owns Google Ireland Limited which it does recognize. Google Ireland Limited is where, we are told, all the sales from Google Europe (also owned by Google Ireland Holdings, which is turn is owned by Google Bermuda) and wider afield are booked. This could be changed in the morning by simply requiring that a company has to be legally domiciled where its operations are.

Even the Irish accountancy and legal firms offering tax avoidance advice to multinationals like Google are saying that this probably is going to have to happen at some point, even though they say that the official tax rate should come down to 2 or 3% (currently Google only pays 0.14 according to a report in the Sunday Independent and employs 0.06% of the workforce).

Incidentally Matsack Trust Limited is the company secretary for 1,295 companies and is “the in-house company secretary service provided by tier-one legal firm” Matheson Ormsby Prentice.

Matheson Ormsby Prentice’s offices are also the location of Round Island One Ltd, as well as other subsidiaries that Microsoft use to avoid all of it’s Irish, EMEA and US corporate taxes.

So let Enda Kenny stand up and proudly defend the tax avoidance measures that are offered to companies like Google so that they can locate part of their business here, and provide little in the way of tax, and a couple of thousand employees, which of course is a tiny drop in the ocean compared to the hundreds of thousands that have lost their jobs or emigrated. Let’s see him offering the same kinds of support to the sectors where they had been formerly employed. Not a chance.

More on this of course in the Irish Left Review Journal out in January.

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2 Responses

  1. Ciarán

    December 13, 2012 2:59 pm

    It’s also worth pointing out that calling the corporate capturing of state functions in order to create opportunities for tax arbitrage isn’t exactly capitalism.

    Or rather, it is capitalism, but capitalism isn’t what the capitalists claim capitalism to be, if you see what I mean.

  2. Donagh

    December 13, 2012 4:30 pm

    Well, you’ve hit on a number of points. There is this notion of ‘capitalism’ based on the clear demarcation and possible difference in power between the modern multinational corporation operating in a ‘free’ competitive market and the state, with the state in a position where it has to do the bidding of the globalized ultra mobile MNC in order to get their bidding. However, as Leo Panitch and Sam Gindin argue in the Making of Global Capitalism a so called ‘free competitive market’ would not exist with the structures for the market that the state puts in place, principally through the law. The two are interdependent with the state, even a relatively small one like Ireland have considerably more power because it is the one that is providing access to that market. The law in turn creates the conditions for the market interaction to occur. A good recent example of this was the creation of the Irish covered bond market through legislation in 2001. Now we know that Michael McDowell worked is fat little ass off as Attorney General at the time to make sure that the legislation was exactly as the financial service lobby wanted. The reason was to allow Depfa bank and other Pfandbrief banks to avail of this new market. And what did they do with it?

    The other point is that the idea that these companies are operating in a ‘competitive’ market, where they have to reduce costs in order to retain shareholder value while keeping ahead of the competition etc. This is not the case at all for these companies. Most of them sell their products, such as patents and rights to intellectual property, trade marks etc not in an open market, which classical economics says should set the price, but to themselves – where one part of the company sells to the other. The price then is set by the company, not by the market, and sure enough in order to protect profits, and as they are an unlimited company under common law (UK and Ireland) they can set the price of that asset very very high indeed. But there is also the issue of the scale of production. There is no way that a modern corporation could operate in an individual national market, and as such they have to create the conditions that allow them to operate internationally, and that the state must be involved in creating the conditions for that.

    Final point, your comment reminded me of John Ross’ take on the single currency in 1996, where he pointed out that the ideas behind Maastrict and the creation of the single currency was based on a grafting of 19th century ideas of the market on to late 20th century conditions and the very different scale of production for most modern multinational companies.

    Maastricht, in essence, attempts to solve the problem of creating a single currency by grafting a 19th century monetary system, with the same rigidity in exchange rates as a gold based one, onto a 20th century economy. By irrevocably fixing the ratios between national currencies (i.e. abolishing them), adjustments between different levels of productivity, and other factors affecting costs, can no longer take place via exchange rates — this, incidentally, would occur with any attempt to introduce a single currency, and not simply under the Maastricht Treaty. The only issue is ‘what type’ of adjustments will take place in the real economy.

    If there existed a 19th century productive economy, to correspond to a 19th century concept of exchange rates, the price system could take the strain of adjustment. Regions falling behind in productivity, for example as with the UK due to low rates of investment, would reduce their prices relative to those in other regions. In order for relative prices to fall in these regions, firms would have to accept reductions in profits, labour would accept reductions in wages etc. In reality, of course, this will not occur — because the 19th century economy no longer exists. Firms engaged in imperfect competition/monopoly will respond, just as textbooks de scribe, and as the history of the 20th century demonstrates, not by reducing prices but by reducing output. Labour will not react with favour to reductions in wages. Recessions will multiply, regional imbalances will intensify, racism and xenophobia will spread, the trade unions will be attacked to attempt to reduce wages, the welfare system will be eroded to drive down costs, crime will soar as unemployment rises etc. The experience of the UK re-joining the gold standard, or of its ERM membership, will be repeated on a European scale.

    All the phenomena, in short, experienced with the move to implement the Treaty of Maastricht will intensify to a qualitatively higher level. The mismatch between 19th century money and a 20th century economy, while an interesting ‘theoretical’ experiment, will be most unfunny to witness in practice.

    http://ablog.typepad.com/keytrendsinglobalisation/1996/09/index.html