Bonum Certa Men Certa

Cablegate: Microsoft's Tax Dodge

Cablegate



Summary: A look at the confidential cable about "IRISH FOCUS ON U.S. FIRMS"

OVER THE years we have written a great deal about Microsoft's tax dodge in the US and EU. We showed that Microsoft had cronies (former executives) in government to allow it to do this and we also mentioned Charlie McCreevy on occasions.



The following cable mentions Microsoft almost exclusively in relation to tax dodging in Ireland. "On this issue," says the cable, "Irish coverage followed reports concerning, on one hand, renewed pressure for EU tax harmonization and, on the other, the use of Irish corporate tax benefits by U.S. firms. Regarding the latter, the Wall Street Journal reported in November that Microsoft had placed intellectual property with Irish units to save USD 500 million in U.S. taxes, and a subsequent New York Times editorial described Ireland as a tax haven that facilitated the outflow of U.S. jobs and investment. The Irish media later reported that the IRS was pursuing USD 500 million in back taxes from the U.S. software group Synopsis over its Irish subsidiaries' transactions. Irish reporting highlighted domestic concerns that U.S. firms were exploiting Ireland's 12.5 percent corporate tax rate with questionable transfer-pricing methods. (As a theoretical example, U.S. firms could sell assets to Irish subsidiaries at low prices in order to minimize their profitability, and thus tax liability, in the United States; the Irish subsidiary could then resell the assets and be taxed at the lower Irish rate, while its profits would form part of the earnings that would grade the U.S. firm's overall performance.)"

We all know what happened to the Irish economy not so long ago. This whole gig paid off for corporations from abroad, but it didn't work so well for Irish people, did it?

McCreevy is mentioned in this confidential Cablegate cable where it says: "Ireland would continue to resist any move within the EU to harmonize tax rates that might push Ireland's corporate tax higher, said Connolly. He explained that Ireland's opposition to harmonization had a powerful spokesperson in EU Commissioner for the Internal Market (and former Irish Finance Minister) Charlie McCreevy, as well as a like-minded ally in the UK."

Here is the full cable:










C O N F I D E N T I A L SECTION 01 OF 03 DUBLIN 001505

SIPDIS

SIPDIS

E.O. 12958: DECL: 01/31/2015 TAGS: EINV [Foreign Investments], ETRD [Foreign Trade], ECON [Economic Conditions], EI [Ireland] SUBJECT: GRANTS AND TAXES: THE RECENT IRISH FOCUS ON U.S. FIRMS

Classified By: Ambassador James C. Kenny; Reasons 1.4 (B) and (D).

ۦ1. (C) Summary: The Irish Government is determined to maintain its approach to grants and taxes for foreign firms, despite recent press coverage of U.S. companies that highlighted problems with these investment incentives. The coverage focused on three areas: EU obstruction of Irish grant aid to U.S. firms; U.S. reports on questionable tax practices by Irish-based U.S. companies; and, renewed pressure for EU tax harmonization. Irish Government officials told Post that they hoped to reverse EU reluctance to approve large grants to U.S. firms, a posture reflecting the Commission's failure to recognize intense global competition for investment. The officials also said that they would resist EU pressure on Irish tax structures, which had underpinned Irish economic success and helped U.S. firms to compete more effectively against international rivals. Notwithstanding the focus on grants and taxes, Post believes that Ireland's chief concern in its bid to remain an attractive destination for U.S. investment is the erosion of the country's cost competitiveness. End summary.

Background: Irish Press Attention to U.S. Firms --------------------------------------------- ---

ۦ2. (U) November saw substantial Irish media coverage of issues relating to U.S.-invested firms, a sector that typically receives less press attention than its significance for the Irish economy would merit. There are currently over 620 U.S. firms operating in Ireland, employing over 90,000 people and supporting an estimated 250,000 jobs in Irish industry (one-eighth of the total labor force). In 2004, these firms exported roughly USD 55 billion in goods and services and spent over euro 17.2 billion on payroll and services. According to the U.S. Department of Commerce and local American Chamber of Commerce, the stock of U.S. investment in Ireland in 2004 stood at USD 73 billion, and U.S. firms have accounted for 88 percent of new FDI projects in 2005. The recent Irish reporting that bore upon the U.S.-invested sector focused on two subjects:

A) Irish grant aid. In mid-November, the Irish Times reported that Ireland's Industrial Development Authority (IDA, the Government's FDI-promotion agency) had asked the EU Commission to extend indefinitely its initial review of a proposed euro 50 million IDA grant to Johnson and Johnson subsidiary, Centocor, which is building a pharmaceutical plant in Cork. The request aimed to avoid a likely formal Commission investigation into the possible competition-distorting effects of the IDA grant within the EU. The IDA's action was reminiscent of its decision last March to withdraw a proposed euro 170 million grant to Intel only days before the Commission was expected to rule against the grant. Irish reporting on this link cast doubt on the IDA's ability to offer large grants to foreign firms, a long-standing plank of the Government's investment incentive strategy.

B) Corporate taxes. On this issue, Irish coverage followed reports concerning, on one hand, renewed pressure for EU tax harmonization and, on the other, the use of Irish corporate tax benefits by U.S. firms. Regarding the latter, the Wall Street Journal reported in November that Microsoft had placed intellectual property with Irish units to save USD 500 million in U.S. taxes, and a subsequent New York Times editorial described Ireland as a tax haven that facilitated the outflow of U.S. jobs and investment. The Irish media later reported that the IRS was pursuing USD 500 million in back taxes from the U.S. software group Synopsis over its Irish subsidiaries' transactions. Irish reporting highlighted domestic concerns that U.S. firms were exploiting Ireland's 12.5 percent corporate tax rate with questionable transfer-pricing methods. (As a theoretical example, U.S. firms could sell assets to Irish subsidiaries at low prices in order to minimize their profitability, and thus tax liability, in the United States; the Irish subsidiary could then resell the assets and be taxed at the lower Irish rate, while its profits would form part of the earnings that would grade the U.S. firm's overall performance.)

U.S. Business Responds ----------------------

ۦ3. (U) The American Chamber of Commerce used the occasion of its annual Thanksgiving lunch to respond strongly to the press coverage. AmCham President Eoin O'Driscoll, an Irish citizen, said that U.S. reporting had misrepresented Ireland's transparent tax structures and could damage Ireland's reputation as a foreign direct investment (FDI) destination. He noted that, in an environment of intense global competition for FDI, Ireland would rely not only on permissible state aid and an effective tax regime, but also on a strong education system, a vibrant business culture, and new research and development capabilities. He called on the Government to urge Member States to recognize that Europe was losing competitiveness when measured against other regions. In separate remarks, AmCham CEO Joanne Richardson pointed out that U.S. firms exemplified corporate responsibility, having paid euro 2.7 billion in Irish taxes in 2004. Finance Minister Brian Cowen, who also attended and spoke, emphasized that the GOI would resist any pressure within the EU for Ireland to change its 12.5 percent corporate tax rate.

The IDA's Views ---------------

ۦ4. (U) On December 2, Post discussed recent attention to tax and grants with Ray Bowe and Enda Connolly, Chief Economist and Spokesperson/R&D Division Manager, respectively, for the Industrial Development Authority (IDA), the Government agency that oversees Ireland's investment promotion strategy. In 2004, the IDA paid out euro 66 million in grants to foreign firms and negotiated 70 new business projects involving a total investment of euro 5 billion over the coming years. At the start of 2005, moreover, the number of IDA-supported foreign companies was 1,022, including 478 U.S. firms. Bowe was directly involved in negotiations with the EU Commission in the Intel and Centocor cases, and the Wall Street Journal quoted Connolly in its article on Irish tax benefits.

Irish Frustration with the EU on Grants ---------------------------------------

ۦ5. (C) Bowe noted that Irish frustration with the EU in the Intel and Centocor cases centered on the application of the Multisectoral Framework on Regional Aid for Large Investment Projects, adopted in 2002. He observed that, since the Multisectoral Framework was relatively new and untested, EU Competition Directorate officials tended to be conservative, slow, and not business-friendly in interpreting the Framework's grant review guidelines. They also had wide discretion with the review criteria, including their estimates for the market share that grant-recipient firms would garner. Most importantly, according to Bowe, these EU officials did not see their work in the context of the overarching Lisbon Agenda, nor did they fully consider that the EU was fighting for investment in a highly competitive global environment. For example, Intel had made clear that it would look not to other Member States, but outside the EU, as an alternative to further investment in Ireland. Connolly conveyed his sense that the Commission was beginning to "wake up" to this reality, and he added that the IDA intended to pursue possible grant aid for Intel and Centocor as both firms moved to the second phases of their respective Irish investments.

ۦ6. (C) Connolly cautioned, however, against overstating the importance of grants in a foreign firm's decision to invest in Ireland. He described such aid as a "contribution to start-up costs," ranking well below other determinants of Ireland's attractiveness as an investment destination, such as an educated work force, a pro-business climate, a transparent legal framework, and favorable tax structures. The fact that the value of grant aid per number of jobs created by foreign firms had continuously fallen in Ireland since 2000 showed the decreasing significance of grants in investment decisions, remarked Connolly. With the 2004 accession of ten Member States, moreover, general EU guidelines for regional aid were scheduled to tighten in 2006, restricting IDA grants primarily to the Border and Mid-West regions. Ireland, said Connolly, had accepted this eventuality; in fact, grants were rarely now provided for projects in Dublin and Ireland's east coast. Bowe pointed out that Ireland would continue to provide aid for research and development and small/medium businesses under the EU "horizontal aids" program, which the Irish Government did not expect to change significantly in the next five-ten years.

The Advantages of Low Taxes ---------------------------

ۦ7. (C) Regarding the Wall Street Journal and New York Times pieces, Connolly emphasized that, since the 1950s, Ireland had structured its taxes to induce investments from foreign firms -- "but on the back of their substantive operations on the ground" (a point he made in the Wall Street Journal). He argued that these operations were not, as U.S. reporting had implied, an "excuse" to shift around company funds; rather, they had driven and sustained Ireland's rapid economic growth in more recent decades. He pointed out that Irish tax arrangements performed a less publicized, but critical, function for U.S. firms in allowing them to retain and invest a greater share of their overseas earnings. This option made U.S. firms more competitive against foreign companies whose home governments did not exercise the same scope of jurisdiction over overseas earnings that the U.S. Government did. Connolly added that U.S firms, decision to move a portion of the ownership of their intellectual property to Ireland also enabled them to take advantage of vibrant research and development programs in Ireland. The most innovative ideas, he said, were no longer found only in the United States; firms realized that they had to tap into other countries, expertise in order to remain leaders in their fields.

ۦ8. (C) Ireland would continue to resist any move within the EU to harmonize tax rates that might push Ireland's corporate tax higher, said Connolly. He explained that Ireland's opposition to harmonization had a powerful spokesperson in EU Commissioner for the Internal Market (and former Irish Finance Minister) Charlie McCreevy, as well as a like-minded ally in the UK. The new Member States were also opting for lower corporate taxes, and Belgium, too, had recently cut its rates. Connolly noted that, in contrast to Ireland, the higher taxes needed to fund the social model espoused by such Member States as Germany and France had been an obvious drag on economic growth. He added that German/French complaints about Ireland's low tax rates were hypocritical, since German and French firms in Ireland, particularly those that were family-owned, were notorious for tax avoidance. These firms, said Connolly, were expert in sheltering revenues through tax haven arrangements in former colonies and Switzerland in order to minimize their profitability, and thus their tax burden, in Ireland.

Comment: Cost Competitiveness -- The Real Investment Concern --------------------------------------------- ---------------

ۦ9. (C) Comment: Ireland recognizes that a corporate tax rate hike would likely send investors to the exits, so the GOI has made clear that it would fight to the last man to block moves toward EU tax harmonization. Oddly, however, the 2006 Irish Government budget unveiled on December 7 (covered septel) included a proposal to eliminate the remittance basis of personal income taxation for resident foreign businessmen. Currently, the tax system allows foreign executives in Ireland to receive their salary outside Ireland's jurisdiction and pay tax only on money they "remit," or bring into, the country to support themselves. U.S. firms have been quick to point out that the budget proposal to eliminate this allowance would discourage executives from establishing operations in Ireland. In other words, the personal income tax structure would work against the investment incentives offered through low corporate taxes.

ۦ10. (C) Actually, Ireland's chief concern in its bid to remain an attractive destination for U.S. investment is not so much its tax and grant strategy, but rather the erosion of the country's cost competitiveness. Irish-based foreign firms face some of the highest costs in the EU for labor, utilities, and land. In 2004, for example, the annual average cost per employee in Ireland (encompassing wages and taxes) was euro 38,100, compared to euro 33,200 in Germany, euro 28,400 in Spain, and euro 7,700 in Poland. In recent years, GOI economic strategists had acknowledged these high costs and appeared willing to concede simple manufacturing investments to lower cost regions like India and China in the belief that Ireland could promote itself as a producer of higher-value, knowledge-intensive goods and services. These strategists worry now, however, that U.S. firms seem increasingly willing to target such regions for investments in this sort of higher-end production. For example, Intel and Microsoft in recent weeks both announced billion-dollar investments in India that have the kind of research and development components that Ireland would relish. Post does not anticipate any near-term exodus of U.S. firms from Ireland, and, in fact, large U.S. pharmaceutical and banking investments were announced the week of December 5. Nevertheless, the likely acceleration of investment in higher-value production in places like India and China does pose longer-term challenges for Ireland to build upon its current FDI base. KENNY







It may be useful to keep diplomatic evidence of this inane practice.

Comments

Recent Techrights' Posts

The LLM Bubble is About to Implode, Gimmicks and Financial Shell Games Cannot Prevent That, Only Delay It
To inflate the bubble MElon is now doing the classic trick of buying from oneself for a fictional value
 
Links 30/03/2025: Security Breaches, Crackdowns on Dissent/Rival Politicians
Links for the day
Gemini Links 30/03/2025: London Soundtrack Festival, Superbloom, gmiCAPTCHA
Links for the day
Phasing Out Vista 10 in Nations Where ~90% of Windows Users Still Rely on It
Recipe for another Microsoft disaster
The Cost of Pursuing the Much-Needed Reform/Shield Against Strategic Lawsuits Against Public Participation (SLAPPs)
“It is curious that physical courage should be so common in the world and moral courage so rare.”
Links 30/03/2025: Contagious Ideas, Signal Leak, and Squashing Lousy Patents
Links for the day
Links 30/03/2025: "Quantum Randomness" and "F-1 Visa Revoked" in US
Links for the day
Gemini Links 30/03/2025: US as a Threat, Returning to the WWW
Links for the day
Links 30/03/2025: Judge Blocks Dismantling Of VOA, Turkey Arrested Many Journalists
Links for the day
Over at Tux Machines...
GNU/Linux news for the past day
IRC Proceedings: Saturday, March 29, 2025
IRC logs for Saturday, March 29, 2025
Judges Would Never Rule for Men Who Strangle Women or Against Women Who Merely Wrote Articles About Abuse They Had Received From Men
We don't intend to do "trial by media", so we won't be disclosing claims and defences until it's over
Windows is an Unnatural Disaster, It is Also Avoidable
there's a wide window of opportunity opening
Gemini Links 29/03/2025: Less YouTube and More Station
Links for the day
In Some Countries, Such as Thailand, Firefox is Already Measured at Less Than 2% (One Day Firefox Will Get Blocked, Not Only Lack Support)
Web consolidation around Chrom-isms will doom the Web as we know it
Killing the News With Spam and Slop Benefits Those Whose Desire is an Uninformed Population
adoption of Free software depends indirectly on political activities/activism
Links 29/03/2025: Trademarks Battles, Fires Destroy More Than 3,000 South Korean Homes
Links for the day
Open Source Initiative (OSI) Privacy Fiasco in Detail: An Introduction
Perhaps tomorrow or perhaps next week we'll share more information about what happened and what was reported to the California Privacy Protection Agency
Links 29/03/2025: More Crackdowns on Science, "Hey Hi" Slopping is Flopping
Links for the day
IBM's BS (Bait, Switch) Regarding Ways to Stay Onboard
PIPs, RTOs, and forced relocations are just an illusion of choice (or ability to recover)
Costa Rica Almost Bankrupt Because of Microsoft
the incidents in Costa Rica are Windows incidents
Gemini Links 29/03/2025: Art of Looking, Wireguard, EMacs
Links for the day
Links 29/03/2025: Attacks on Social Security and War Updates
Links for the day
Banned evidence: Ars Technica forums censored email predicting DebConf23 death, Abraham Raji & Debian cover-up
Reprinted with permission from Daniel Pocock
Over at Tux Machines...
GNU/Linux news for the past day
IRC Proceedings: Friday, March 28, 2025
IRC logs for Friday, March 28, 2025
Intimidation, Threats, and Bullying Not Tolerated by Techrights
When it comes to our reporting, safety always comes first
A World Without Rules
We're long insisted on better laws and actual enforcement of them (applicable to all, not selectively applied)
statCounter Sees Microsoft Windows Falling to New, Unprecedented Lows in Palau
Taking Android into account, Windows is now down to an all-time low of 14%
Google News Lost the Fight to LLM Slop (While Google Itself Sells Slop, Nowadays Under the Name "Gemini")
Many people say that "Google is getting worse"; that's almost an understatement
Links 28/03/2025: AirAsia Trouble Again, UMich Culls All DEI Programs
Links for the day
Gemini Links 28/03/2025: Alexa is for Gullible People, Rant About Feature Overload
Links for the day
The SLAPPs From the Microsoft Strangler (and Sidekick) No Better Than Patent Trolling
one must never settle with trolls
Something to Celebrate in Gemini Protocol
More capsules and users join in
Links 28/03/2025: Last Reminder "to Delete Your 23andMe Data", "UK's First Permanent Facial Recognition Cameras Installed"
Links for the day
Microsoft Canonical Continues Its FUD (Fear, Uncertainty, Doubt) Campaign, Reveals Google Too Sponsored It
They're paid-for lies from a Chinese company that takes GAFAM money to write puff pieces about them
Android Rises Above 76% in Mozambique, Leaving Windows in the Dust
Windows may soon be measured as smaller than Apple's iOS
IBM, Red Hat and Microsoft Probably Also Manipulate Metrics (It Helps Con the Shareholders)
Wall Street's credibility will depend on enforcement of "checks and balances"
Slopwatch: trendhunter.com and Other Pure Junk From "Google News"
The need to vet sources is hardly new; anyone can spew out anything, anywhere. There's a need for vetting.
Gemini Links 28/03/2025: Rewatching The X-Files, Slop Concerns, and NOSTR Censorship
Links for the day
Links 28/03/2025: Australia at Risk, EPO Grants Illegal Patents With Illegal Effect
Links for the day
Over at Tux Machines...
GNU/Linux news for the past day
IRC Proceedings: Thursday, March 27, 2025
IRC logs for Thursday, March 27, 2025