Ireland Softens Under Pressure To Drop Its Corporate 'Duty-Free Zone'

U.S. and European officials are angry about Irish rules that let some firms pay just 2 percent in corporate taxes. Ireland announced some tax code changes, but few think they will change things much.

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Major American tech companies have concentrated their global corporate headquarters in Ireland - nothing automatically wrong about that. The location allows companies to save billions of dollars in taxes. And as we heard yesterday, the tech industry is changing life in Ireland. Yet lawmakers in the United States and Europe are furious. NPR's Ari Shapiro explains why.

(SOUNDBITE OF PROMOTIONAL VIDEO)

UNIDENTIFIED MAN: People. Talent. People. Talent.

ARI SHAPIRO, BYLINE: This promotional video is designed to attract international business to Ireland. It lists some of the things that make the country a great place to work. Passion, rebellion, innovation, it says.

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UNIDENTIFIED MAN: Hope high. Source. Try.

SHAPIRO: One important word does not appear in this video - tax. Bob Goulder is with the U.S. nonprofit group Tax Analysts.

BOB GOULDER: There's a huge differential between profits being taxed at 35 percent in the United States and being taxed at only 12-and-a-half percent in Ireland.

SHAPIRO: That's right. Ireland charges U.S. companies only a third of what they would pay in America. And those are just the official rates. In reality, Goulder says, some American companies pay less than 2 percent tax on their profits in Ireland, like Apple.

GOULDER: According to their own disclosures, they currently have $137 billion sitting offshore, indefinitely reinvested outside the United States.

SHAPIRO: That makes American lawmakers furious. At a hearing last year, senators accused Apple CEO Tim Cook of tax dodging. Cook insisted his company does no such thing.

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TIM COOK: We pay all the taxes we owe - every single dollar. We not only comply with the laws, but we comply with the spirit of the laws.

SHAPIRO: Young professionals in Ireland understand how this country is perceived, and they have different opinions about it.

SEAN BRANNAGH: It's like this duty-free zone but for companies.

SHAPIRO: Sean Brannagh is an American web developer who moved to Cork, Ireland. He's out for drink with his friend Seamus Obuadhachain, who's getting his PhD in artificial intelligence.

SEAMUS OBUADHACHAIN: I have friends who have graduated in the last couple of years who've gone to work for companies like Facebook and Microsoft and Yahoo, who all base themselves here in Ireland. And they know that it's explicitly because of the tax laws, which are lax over here. Like, everyone knows this, but we benefit from it. We're not complaining.

SHAPIRO: People outside of Ireland are complaining - and not only members of Congress. The European Commission recently started an investigation into whether Ireland's tax arrangements with Apple amount to illegal state aid. A couple months ago, Irish Finance Minister Michael Noonan acknowledged that his country has a perception problem.

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MICHAEL NOONAN: Aggressive tax planning by the multinational companies has been criticized by governments across the globe and has damaged the reputation of many countries.

SHAPIRO: He announced that he's changing a policy known as the double Irish that lets some companies base themselves in Ireland but register for tax purposes in an overseas tax haven.

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NOONAN: I am abolishing the ability of companies to use the double Irish by changing our residency rules to require all companies registered in Ireland to also be tax resident in Ireland.

SHAPIRO: The head of the Cork Chamber of Commerce, Conor Healey, calls this a rebalancing.

CONOR HEALEY: And our government here, in our most recent budget, has taken some steps to just clarify our position.

SHAPIRO: Closing the loophole, many say.

HEALEY: Well, that's been one description - not one I'd necessarily agree with as being a loophole. It was an aspect of the tax environment which was available and legal. And it was used by many companies. It's one which, you know, hasn't met the approval of everybody, and that's now being dealt with.

SHAPIRO: But companies already in Ireland won't have to make that change for another six years. And Ireland's introducing a new provision known as a patent box that may reduce the tax bill for these companies even more. Through all of this, nobody accuses tech companies of actually breaking the law. Tax analyst Bob Goulder says if there's one take-away here, it's this.

GOULDER: The outrage is not what's illegal. The outrage is what is perfectly legal.

SHAPIRO: And although American lawmakers have expressed plenty of outrage, nobody thinks Congress will be able to fix this problem. Ari Shapiro, NPR news.

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