Following a U. S. Senate hearing where lawmakers suggested Apple is sheltering revenue from taxes by using a subsidiary company in Ireland, the country is saying the real issue is that companies are working the system across borders and that international cooperation is needed to make real changes. Ireland's government is right, but some of that change needs to happen in the U.S., and there isn't any guarantee politicians want to take on that fight with corporations.
Congress needs to look at changing our business tax laws first
Ireland's Minister for Jobs, Enterprise and Innovation, Richard Burton, said, "[Companies] play the tax codes one against the other; that is tax planning, and I think we do need international cooperation through the OECD to deal with the aggressive nature of that."
He added that Ireland's tax laws are part of the attraction for foreign companies and there aren't any plans to change that.
Ireland was one of the topics that came up during a Senate hearing on Tuesday into corporations holding money outside of the United States where it can't be taxed. Apple has targeted specifically and CEO Tim Cook and CFO Peter Oppenheimer were called to testify on the company's practices.
Mr. Cook said in his opening statement, "Apple has real operations in real places, with Apple employees selling real products to real customers. 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. We don't depend on tax gimmicks."
He said that the problem isn't companies keeping money out of the country; it's laws that need to be changed so companies have incentive to move more money into the U.S.
Politicians seem to agree, and they're looking to Ireland for some of that change since the country's tax loopholes have proven very effective and sheltering revenue from taxation. Targeting individual countries, however, isn't the answer, according to Ireland Prime Minister Enda Kenny. He said,
When I go into the boardrooms either in Asia or the U.S., I am followed into those boardrooms by Swiss, by Singaporeans, by Dutch, by Belgians who are offering specially put-together deals on the tax front. Ours is not a specially put-together deal; it is absolutely transparent, there are no side deals, no special arrangements.
The idea behind Ireland's tax laws, according to Reuters, is to promote job creation in the country. In the U.S., politicians are looking for was to boost tax revenue, and pressuring Ireland to change its laws may be part of that plan despite the fact that making those changes could hurt Ireland's own economy and position in the international business market.
Ireland, however, doesn't seem all that interested in changing its laws to appease the United Stated -- at least not yet. The U.S. could change tax laws in ways that hurt business in Ireland by making it less attractive as an international hub, and just the threat of that could be enough to get Ireland to update its laws instead of risking lost jobs should companies leave for more tax-friendly countries.
Ultimately, international cooperation is needed to implement effective tax reform, but the work has to start at home. The Senate's grandstanding on Tuesday may have been the first step towards that change, or it may have been just political posturing. Hopefully it's the former, otherwise countries like Ireland may feel pressure from the U.S. to clean up our corporate tax problems for us.