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).

€¶1. (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 --------------------------------------------- ---

€¶2. (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 ----------------------

€¶3. (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 ---------------

€¶4. (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 ---------------------------------------

€¶5. (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.

€¶6. (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 ---------------------------

€¶7. (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.

€¶8. (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 --------------------------------------------- ---------------

€¶9. (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.

€¶10. (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 Two Lies Microsoft is Telling in "the News" This Week (to Distract From Layoffs and Decreased Interest in Slop/Chaff)
Microsoft is run by liars and frauds who SLAPP critics
Tux Machines Already Destroyed SLAPPs
Attacks on the mere publication of GNU/Linux news won't be tolerated
Always Check Your Inputs
Garbage in, garbage out. Or wrong assumptions, wrong corollary.
 
Our Lawsuits Against the 'Cancel Mob' (Ringleaders) Helped Reduce Anti-Free Software Online Abuse
That's not to say that lawsuits are the best way to handle terrible people. But that can help.
Tomorrow is the Last Day of the Fund-Raising Campaign of the Free Software Foundation (FSF)
They will probably extend the date, as usual
Fixing Patents in Europe, Little by Little (by Transparency and Reporting of Suppressed Facts)
Tomorrow and throughout the weekend we shall focus some more on the EPO
PCLinuxOS is Available for Download Again
PCLinuxOS is important to us also because its founder, back then the partner of Susan, helped create Tux Machines more than 21 years ago
Links 10/07/2025: Microsoft E-mail 'Services' Collapse Again, "Yet Another Strava Privacy Leak"
Links for the day
Gemini Links 10/07/2025: Automating Git Repo Updates and Small Web 'Zine'
Links for the day
GNU/Linux Leftovers
mostly Linux stuff
Audiocasts/Shows: Going Linux, FLOSS Weekly, and RHEL Clones
3 new picks
We Are Already Fighting - With Considerable Success - SLAPPs in the UK
we intend to tell the full story
Bullies With Pens and Papers (or Apple Macs With Templates)
Not all barristers are evil, but there are perhaps "rotten apples"
Slopwatch: webpronews.com, linuxsecurity.com, linuxjournal.com
a pile of trash disguised as 'articles'
Links 10/07/2025: Linda Yaccarino Divorces MElonazi Site, Wildfires Hit Syria
Links for the day
The History and the Policy of the EPO's Stance on Breastfeeding (Corporate Monopolies Versus Babies' Health)
"The Case for Introducing a Breastfeeding Policy at the EPO"
Gemini Links 10/07/2025: Inventing Chords and "Nightmare Boss"
Links for the day
Igor Ljubuncic Once Again Shows That for Technical Reasons Wayland Still Sucks, Performs Considerably Worse Than What Existed for Decades
That is aside from compatibility factors and other crucial factors
Links 10/07/2025: "Apple Vs The Law" and Twitter Became Full Nazi Bar
Links for the day
Unable to Find Anyone to Work as Their Media Lawyer, Brett Wilson LLP Will Continue Losing Female Staff
What sort of sick person would wish to join Brett Wilson LLP to carry this baton?
Microsoft-Sponsored Propaganda Site Has Removed False 'Hit Piece' About Dr. Stallman (With Fake and Misrepresented Imagery) But Only After 4 Years
So they only removed that page some time around 2025, i.e. about 4 years after it had been published
Dan Neidle Said That Tax Evasion Facilitator Mr Zahawi (Working to Silence Bloggers Through Brett Wilson LLP) Targeted Not Only Him (But The Others Kept Quiet)
"Mr Neidle said after repelling Mr Zahawi he was contacted by bloggers and tweeters who had received similar threats. They deleted their work “and in most cases never commented publicly on anything again”."
SLAPP Funding Transparency Urgently Needed in the UK and Elsewhere (in Practice, Not Just in Theory)
Writing about crime - including Microsoft crime - is not a crime
Over at Tux Machines...
GNU/Linux news for the past day
IRC Proceedings: Wednesday, July 09, 2025
IRC logs for Wednesday, July 09, 2025
Elodie Bergot Still Doing Illegal Things at the EPO, Based on the Local Staff Committee Munich
They keep taking away from the staff while compelling the staff to do illegal things
Gemini Links 09/07/2025: Extreme Testing and Golang Documentation in Geminispace
Links for the day
Vice President of the European Patent Office (EPO) Complains That Techrights Gives Visibility to Legal and Technical Issues at the EPO
"Follow-up on enquiries relating to Dir. 1218 and 1001"
Slopwatch: linuxsecurity.com and Various Slopfarms That Lie About "Linux" and Are Promoted by Google News
Google does not seem interested in tackling this problem
Links 09/07/2025: War Updates and Microsoft Moving to India to Cut Costs
Links for the day
GNU/Linux Was Always a 'Movement' of Inclusion of Tolerance
Even the licences themselves remove access barriers
Links 09/07/2025: "Subprime AI Crisis" and "OpenAI May Be in Major Trouble Financially"
Links for the day
Huge Piles of Legal Papers ('Paper DDoS') Do Not Impress Judges and Regulators
they just make judges and regulators even more suspicious of the eagerness to resort to 'paper DDoS'
Brett Wilson LLP Sent Over 5 Kilograms (or Over 12 Pounds) of Legal Papers! Because Writing About Microsoft Abuses is 'Illegal'.
How do you guys sleep at night? On a big pile of Microsoft money?
Extremism as a Weapon Against GNU/Linux (Microsoft Lunduke)
He ought to know the Halloween Documents. Wasn't he a Microsoft employee when these came out?
Lunduke Isn't Even Hiding His Anti-Linux Agenda (From "Linux Sucks" to "Linux is Pedophiles")
just trying to make a lot of trouble
Some People Use Computers to Get Actual Work Done
Tolerance and inclusion must extend to acceptance that some people don't agree with you, might never agree with you, and imposing what allegedly works for you on them is unreasonable
Example of "Old" Things That Still Work
The notion that something being "old" implies it must be discarded is typically advanced by those looking to sell more of something
Some Scheduled Maintenance Later Today
Typically the most vulnerable service during short interruptions is IRC
Computers Are Just a Tool
People don't get married because they love weddings, folks don't join the army because they love war, and most drivers don't drive to work because they love cars
Apple Way Past Its Prime
Apple deserves a decline
The FSF's SysOps Team Recovered From Serious Hardware Issue Within Hours
About half a day ago I noticed that all/most GNU/FSF sites were not reachable and thus reached out to a contact for any details
Over at Tux Machines...
GNU/Linux news for the past day
IRC Proceedings: Tuesday, July 08, 2025
IRC logs for Tuesday, July 08, 2025
Slopwatch: Turning Bugs Into FUD About "Linux", Getting Basic Facts Wrong
all the screenshots are of fake articles; we don't want to link to any
Technical Reasons, Not Politics: With Wayland "it feels a lot like Linux from 20-25 years ago, which is horrendously frustrating, because it feels like we wasted one or two decades of progress and stability"
Lately, quite a few benchmarks were published to show Wayland compares poorly compared to what we had
PCLinuxOS Recovering From Fire
It looks like a nightmare scenario, where even backups onsite get destroyed
Links 09/07/2025: More Heatwaves, Officials Culled in Russia
Links for the day
Gemini Links 09/07/2025: XScreensaver and Resurrection
Links for the day
Links 08/07/2025: "Cyberattack Deals Blow to Russian Firmware" and "Cash Remains King"
Links for the day
FSF40 T-shirt message
by Alex Oliva
Gemini Links 08/07/2025: Creativity, Gotify with NUT Server, and Sudo Bugs
Links for the day
More on "Lunduke is Actually Sending His Audience to Attack People"
"pepe the frogs"
Links 08/07/2025: Sabotage of Networking Infrastructure, Microsoft XBox Game Pass Deemed “Unsustainable”
Links for the day
Dalai Lama Succession as Evidence That Determined, Motivated People Can Reach Their Nineties
And we need to quit talking about their death all the time
Many Lawyers (for Microsoft) and 1,316 Pages to Pick on a Litigant in Person Who Exposed Serious Microsoft Abuses
Answers must be given
Gemini Links 08/07/2025: Ancillary Justice and Small Web July
Links for the day
Over at Tux Machines...
GNU/Linux news for the past day
IRC Proceedings: Monday, July 07, 2025
IRC logs for Monday, July 07, 2025