“Google was the ﬁrst of the new wave of tech companies to locate in Ireland and we proved beyond doubt that you can drive business from Dublin into multiple locations when you hire the right people with great sales skills.”
– John Herlihy, VP, International SMB Sales & Head of Google Ireland
The abovementioned statement is partially true. Human resources of Ireland always play very important role in alluring the big corporates to set up and run their businesses in a flourishing style. But, that is not the sole reason for big companies to establish their headquarters in Ireland. Low income tax rates, solid ecosystem, helpful weather add to the reasons list. In recent years, Ireland has become the hub of managerial affairs for many US based companies like, Google, Facebook etc. because it has extended the ‘best blend of offering’ to them.
Double Irish With a Dutch Sandwich:
Double Irish with a Dutch Sandwich tax loophole is thought to be the main reason for Google to be based in Ireland. Double Irish with a Dutch Sandwich is a tax avoidance technique in which profits are shifted from one Irish company to no tax zone through a medium of a subsidiary. In this technique, four companies are needed. Among them, parent company is based in U.S.; one Irish subsidiary company is based in tax haven and other Irish subsidiary company is based in Ireland and the intermediary company is based in the Netherlands. In this process, U.S. parent company provides with intellectual property rights to Irish subsidiary company and royalty income, generated from the transactions of the Irish subsidiary, is siphoned off to the parent company.
US federal system levies tax on corporations based on its territoriality. For US tax purposes, a corporation must be incorporated domestically. All the foreign companies, not incorporated in US, are not subject to tax. In addition to that, US federal income tax is not imposed on the income earned by a domestic parent corporation through foreign corporate subsidiaries until the profits are admitted to the U.S. in the form of a dividend.
In Ireland, the corporate tax rate is 12.5% which is much lower than U.S.(around 35%). Also, Ireland has a double taxation policy in itself. If an Irish subsidiary is controlled by managers outside of the company in Bermuda (Tax haven), it is treated as non-resident and it can escape tax. The royalty fee paid by Dublin for the use of Bermuda’s intellectual property is a deductible expense. All the royalty income is taxable in Bermuda at a zero percent income tax rate. Also, Ireland has no rights to the profit earned by the intellectual property based in another country. However, Ireland imposes withholding tax on annual payments by an Irish company to non resident corporates. To avoid that tax, big tech companies, like Google, use the Netherlands (Dutch Sandwich) as a medium to channelize the money from one Irish subsidiary company to another Irish subsidiary as Ireland does not levy tax on money moved between European Union.
Despite the financial and economic crisis, large pool of talent and cold, damp weather add to the factors of attractions in Ireland. While, talent of Ireland understands the present and future value of technological industry, chilly climate of Ireland is more energy efficient and greener to cool down its data servers.
In conclusion, Ireland has attracted many renowned corporations, including Google, due to the lobbying work of Industrial Development Authority; highly skilled young talents and 12.5% corporate tax rate. But, it can be said that corporations must abide by Corporate Social Responsibility by paying taxes. Nonetheless, Google has saved billion of rupees after setting up its headquarter in Ireland through Double Irish tax loophole. But, on 14th September, 2014 Irish Finance Ministry proposed to levy tax non resident companies as tax resident to shut down Double Irish tax avoidance from 1st January, 2015. Nevertheless, non resident companies continue to be regarded as non resident companies until 31st December, 2020.