When most people think about the location of tech companies, Silicon Valley comes to mind immediately. Despite the fact that thousands of companies do have their US headquarters in California, it’s no secret that most of these companies sell their products and services in the global market too. What many people don’t realise, is that there is a similar trend regarding the location of these companies’ international/global/European headquarters, and there’s a surprisingly large focus on the Grand Canal Dock area of Dublin, Ireland.
If this is your first time reading about Dublin’s ‘Silicon Docks’, you might be rolling your eyes right now, but I assure you that this is not the same Ireland your great-grandparents left in the late 1800s. The numbers speak for themselves: Ireland has recently become one of the richest countries in the world, ranking 4th in the world in nominal GDP per capita. Foreign multinationals employ 25% of our workforce, so it’s reasonable to assume that the two are correlated.
Still, the question stands: how could Ireland, a country the size of Indiana, become a hub for anything –– let alone technology? Apple, Microsoft, Intel, Paypal, Linkedin, or AirBnB could answer that question better than I can. Even several of of the companies we will be visiting on TechTrek have headquarters in Ireland: Google, Facebook, Twitter, MetLife, Dropbox, Wayfair, and HubSpot (Affectionately known as DubSpot). Those are just a few of the ones that I looked up, but I’m sure the list goes on.
PR teams give a variety of reasons for their companies’ involvement in Ireland. MathWorks cited our “diverse multi-lingual workforce”, and an “attractive university system that attracts talent from all over Europe”. Our strategic European location, temperate climate, and good golf courses are often brought up too, but the Irish people know all too well that the answer lies in our tax code, which is favourable to say the least.
On paper, the Irish corporate tax rate has been sitting at 12.5% for the last few decades. However, it is well known that foreign companies actually pay an ‘Effective Tax Rate’ of around 4%. This controversial approach has earned Ireland the title of the ‘Biggest Tax Haven in the World’, according to economists at Berkley.
One particular tax loophole was incredibly popular, famously used by Apple as early as the 1980s, until the Irish government begrudgingly brought it to a close in 2016. This loophole was a complicated process known as the ‘Double Irish’. Put simply, it involved setting up two subsidiaries in Ireland, and transferring profits to one of these companies, then to the Netherlands, and finally back to the other Irish company. Any company that did so avoided almost all corporate taxes in the process.
While this might seem like a win for multinationals, the Irish economy also benefited. The amount of investment it attracted seemed to compensate for the low amounts of tax revenue being collected, and despite this, Ireland was still collecting more money from corporate tax than it ever had before.
The Double Irish made headlines again in recent years, particularly after it was discovered that Apple had only paid $10 million in corporate tax on the $16 billion they recorded in profits in 2011. Had that money been recorded in the US, they would’ve been expected to pay $6 billion at the 39% rate. In 2016, following the closing of the Double Irish, the European Commission ruled that Ireland had been giving Apple an illegal tax benefit, and the tech giant was ordered to pay $14.5 billion to the Irish government to make up for decades of underpaid taxes.
This decision was appealed, not by Apple, but by the Irish government, who feared that the ruling would drive US business out of the country. After months of back-and-forth, Apple began to make payments to Ireland, and relocated their headquarters to the island of Jersey, so that they could continue avoiding taxes elsewhere. Despite this, Apple continues to employ thousands of people in Ireland, and hundreds of other companies are continuing their operations in Ireland.
At the end of the day, it’s difficult to determine whether the 30 years of Double Irish were a good or bad thing. It was definitely good for Apple, who got a massive discount on taxes, and it was great for Ireland, because it attracted investment. However, it came at a huge disadvantage to the US government, who lost out on billions of dollars in tax revenue, and of course, the American people, who lost out on the opportunity to work for American firms.
It’s also clear that closing the Double Irish wasn’t enough to bring US companies back to the US. While the Double Irish might have been one of the best ways to legally avoid taxes, the Panama Papers in 2015 revealed that it certainly isn’t the only way.
This week, President Trump offered Apple and ‘Easy solution’ to avoid Chinese tariffs: bring manufacturing back to the US. Knowing Apple’s history of offshore business, I think this problem is far more complicated than the president’s solution suggests.