Arms Firms Lock On To Irish Tax Breaks International weapons firms with virtually no presence in Ireland are using the state's low tax rate to base off-shore companies that funnel billions in profits. Yet the state hardly benefits at all. Mark Hilliard and Ken Griffin report A UTC helicopter A Raytheon missile F15 aircraft 1

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FIVE of the world's top arms manufacturers are using Ireland and its low tax rates to base off-shore companies which hold billions of dollars in assets. A Sunday Tribune investigation has found that none of the defence contractors in question pay any significant tax to the state and between them employ just two people.



The Irish subsidiaries all have their addresses in Dublin solicitors' offices and have been described as "mere front operations" by a leading international tax expert.



The companies in question – Boeing, BAE Systems, Thales and Raytheon (working jointly) and United Technologies Corporation (UTC) – make some of the world's most controversial and feared weapons systems.



These include Britain's nuclear submarines, Apache, Black Hawk and Chinook helicopters, F15 Strike Eagles, missile defence systems, fighter bombers and a range of other modern weaponry.



In 2008, their eight Irish-based companies held a total of €6.34bn in assets and had a combined turnover of €724.7m with profits of €387m. The Irish government received less than €375,000 in corporation tax – an effective tax rate of 0.09%.



In fact one of Boeing's three Irish subsidiaries received tax credits worth €880,000 from the Revenue Commissioners, meaning that the state effectively lost over €500,000 that year. The nature of these credits remains unclear.



In terms of tax in Ireland, BAE paid €364,045; ThalesRaytheon's joint venture company just €3,372 while UTC paid nothing at all.



Company accounts indicate that these firms have just two confirmed employees in Ireland, both of whom work for Boeing.



International tax expert and Forbes columnist Richard Murphy explained: "There is little difference between them and the letterbox companies seen elsewhere.



"The reason why they locate in Ireland is that the country has built up a culture of not asking foreign countries about their affairs.



"In the arms industry, secrecy is of the essence for commercial and security reasons, so you route finance through places where no questions are asked and you are unlikely to be challenged."



Murphy says that many of these operations are simply designed to reduce their tax liability in the US and transfer finance to tax havens such as the Cayman Islands, Bermuda and Jersey.



"Irish companies are normally linked to companies in tax haven countries. Ireland is respected so the US authorities can ask no questions about their operations there and the Irish authorities don't ask foreigners about payments to and from tax havens."



Of the five defence companies examined by the Sunday Tribune, UTC has by far the most significant financial presence here with assets of €5.7bn in 2008.



Best known for producing Black Hawk helicopters, UTC is the world's 10th largest military contractor and earned around €6bn in 2007. It employs nobody in Ireland but has three Irish-based subsidiaries.



UTC is quick to point out that, despite its work in the defence sector, the majority of its revenues are derived from the commercial building and aerospace fields.



"UTC is a global corporation with business entities in many jurisdictions around the world," it said in a statement.



"The corporation is committed to full compliance with legal requirements wherever it does business."



Meanwhile, BAE Systems, a UK company, no stranger to controversy, recorded assets of €352.8m here in 2008.



As the world's third-largest military contractor, BAE's operations here have already attracted controversy through its use of an Irish-registered homeless charitable trust to shift debts off its balance sheet.



The debts were accrued in 2001 as part of a €1.3bn refinancing operation centring on its Irish assets.



Although changes in accounting standards mean that BAE has to declare these debts again, its Irish subsidiaries continue to be owned by the Arbutus Homeless Persons' Trust, which has been registered as a charitable body with the Revenue Commissioners. The trust is controlled by law firm A&L Goodbody.



Limiting business risks



A spokeswoman for BAE told the Sunday Tribune that such a structure was commonplace and was used by "almost all... international structured finance [operations] throughout the world".



She said that it was designed to limit business risks for investors and lenders who participate in such finance operations.



"When dividend payments are due or when residual funds become available under this financing, those funds will be paid to Arbutus Homeless Person's Trust which will then distribute them to its chosen charities."



It is unlikely that the trust will have much left to distribute as BAE's Irish subsidiaries' expenses have exactly matched their income throughout their existence.



This position means that there are currently no profits available to be paid as dividends to the trust.



Such arrangements are commonplace in Irish corporate finance circles with most law firms operating charitable trusts for such purposes.



These practices have been promoted by the state through a tax credit for companies involved in such transactions.



The Revenue Commissioners has consistently refused to identify those benefiting from that tax credit, arguing that to do so would undermine public faith in the tax system.



Elsewhere, French weapons supplier Thales and its US counterpart Raytheon have based their international joint venture ThalesRaytheon Systems in the office of a Dublin solicitors' firm.



Despite playing a key role in their corporate structures, this Irish holding company does not appear in either company's annual reports.



Typically, such companies are crucial for multinationals to distribute their profits throughout their organisations.



"Companies, particularly US multinationals, use Ireland as a way of funding their operations. You can get money into the country easily and you don't have to pay tax in the US on it," said tax expert Richard Murphy.



Neither Thales nor Raytheon had provided a comment at the time of going to print.



Defence sales of over €22bn



Although best known for civilian aircraft such as the 737 and the 747 Jumbo Jet, Boeing is the world's second-largest military contractor with annual defence sales of over €22bn. A Boeing spokesman told this newspaper that Connexion by Boeing "provides communications connectivity for the US Air Force". It is understood that the company supplies high-speed internet connections to military personnel onboard planes.



Boeing's two other subsidiaries are civilian businesses, involved in aircraft leasing and providing field service operations to Ryanair.



Although Boeing's Irish operations received tax credits worth €880,000, the spokesman said that "decisions to base businesses in Ireland have not been based on the tax regime".



It was unclear whether these tax credits were an accounting exercise or involved refunds from the Revenue Commissioners.



While all the companies examined use incredibly complex corporate structures, there is no suggestion of wrongdoing on behalf of any of them. All are understood to be in full compliance with Irish company and taxation law.



Ireland has become one of the world's leading offshore finance centres with over 400 foreign institutions operating in the International Financial Services Centre (IFSC) in Dublin, including leading banks, insurance companies and finance arms of global corporations.



The secret to the state's success had been some of the lowest corporation tax rates in the EU and a flexible regulatory approach which focuses heavily on companies regulating themselves.



Low corporation tax



The standard rate of corporation tax here is 12.5% compared with 28% in Britain, 30% in Germany, 33.3% in France and up to 35% in the US. The only EU members offering comparable rates are Cyprus and Bulgaria.



The Department of Finance has defended this policy describing it as a "consistent strategy of maintaining a low tax burden on companies so as to support sustainable economic growth and social progress".



"The 12.5% corporate rate is a general rate on trading activity and as such is not focused on any particular segment of Irish industry," it said in a statement.



"There is no distinction between small and large enterprises or between enterprises that serve the local economy or those that have a multinational focus."



The department insisted that Ireland does not encourage the establishment of brass-plate operations seeking simply to avail of low corporate tax rates.



"The reality is that we live in a globalised economy. Companies establish or restructure operations for sound business reasons. Multi-nationals competing in a global market will seek to optimise profits."



It added that Ireland wasn't regarded as a tax haven by either the Organisation for Economic Co-0peration and Development (OECD) or other governments, including the US.



However, despite the government's protestations, tax justice campaigners typically rank Ireland with the Netherlands and Luxembourg as the EU's major 'tax havens'.



Its main competitors for offshore business also include tax havens such as the Cayman Islands, Bermuda and Jersey.



The country's regulatory structures are generally seen as being 'light touch' and more accommodating than other EU states, generally reacting quickly to incentives offered by competitors for offshore business.



The state has been particularly active in terms of holding company law and recently introduced incentives to compete more effectively with the Netherlands and Luxembourg for such business, even though most such companies do not produce any goods or services.



But the Department of Finance argues that there can be "significant benefits for Ireland when companies establish holding companies here. A holding company may bring with it other back office activities such as headquarters facilities, treasury functions and F&D facilities.



"In moving its holding company to Ireland, a multinational which already has operations here becomes more embedded in Ireland, increasing the possibility of future investment being located here also."



The global financial crisis, however, has brought mounting concerns over this model of doing business with Ireland even drawing criticism from the US State Department's Bureau of International Narcotics and Law Enforcement Affairs last year.



"The government of Ireland should enact legislation to prohibit the establishment of 'shell' companies and give law enforcement a stronger role in identifying the true beneficial owners of shell companies as well as trusts in the course of investigations," it stated.

More bang for their bucks : who's who



United Technologies Corporation (UTC) Irish based assets 2008: €5.7bn



Its three Irish-based subsidiaries, United Technology Intercompany Lending Ireland, White Peak Finance and Kidde Finance Ireland, have recorded sales of over €1bn between 2004 and 2008.



Although not licensed as an actual bank, United Technology Intercompany Lending Ireland effectively acts as an internal financial arm of the parent company, used to spread money across its various operations.



Kidde Finance Ireland , another UTC finance arm, is currently being wound up having repatriated almost €750m of its assets back to the US between 2004 and 2007.



Thales and Raytheon Irish based assets 2008: €260.3m



Although French and American respectively, the two companies' international joint-venture firm is based in a Dublin solicitor's office.



It is officially an Irish company although it has no operations here – unlike in France and the US where it employs 1,600 people on international projects such as Nato's Active Layer Theatre Missile Defence programme.



Thales' stake in Thales Raytheon Systems is held through another Irish firm, Thales Systems Ireland, which also owns stakes in two more defence companies: 50% of Aircommand Systems International and 25.98% of Belgium firm Accsco.



BAE Systems Irish based assets: €352.8m



Although one of the world's most recognisable arms producers, BAE Systems has produced a range of civilian aircraft, most notably the BAE 146, a number of which were retained under and leased through its Irish operation Trident Aviation Holdings.



BAE's product range includes the Tornado and Typhoon planes, cluster bombs, tanks, nuclear submarines and substantial amounts of artillery. Its equipment plays a major role in the Afghanistan and Iraq wars.



The company attracted controversy when it was investigated by Britain's Serious Fraud Office over allegations that it had paid substantial bribes to secure lucrative arms contracts in both Africa and Eastern Europe worth in excess of £2.5bn (€2.9bn).



Boeing Irish based assets 2008: €34.5m



Although a major player in defence, two of Boeing's Irish subsidiaries Boeing Capital Leasing and Boeing Ireland are involved in civilian aircraft leasing and service provision (to Ryanair).



Its third company, Connexion by Boeing, has a military link through its supply of "communications connectivity" for the US Air Force.



The wider company produces the Apache and Chinook helicopters, the F15 Strike Eagle and the Harpoon missile among others.