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Ireland has a strong lobby of large enterprises and patent businesses. Recently, Ireland gained great influence over the software patents dossier in the EU. The responsible Commissioner is Irish. The Council's decision to ignore the European Parliament's amendments and to push for an unsupported "political agreement" was taken under active promotion of the Irish Council Presidency in early 2004. This Presidency was officially "sponsored by Microsoft". In 2001, Microsoft accounted for about 10% of the corporate tax revenues (from 1,200 multinationals, a total of 1.9 billion Euro) in corporation tax of Ireland, which were accounting 44% Ireland's total tax revenues. Ireland's economy is based on a business model of being a tax haven for large US companies. This tax haven is so heavily subsidised by the US and EU that it has become one of the richest European countries in a short time.
News & Chronology
2006-09-11 Finfacts: Top US firms in Ireland may also be liable for big tax payouts ("Top US pharmaceutical firms like Pfizer and high tech companies such as Microsoft, use the zero profit on patent income in Ireland and the low Irish corporate tax, to channel profits from overseas subsidiaries into Ireland.")
2005-02-28 Commissioner McCreevy declines Parliament's restart request
2005-02-28 Florian Mueller: European Commission negates democracy by declining European Parliament's request for a restart (calls McCreevy a "Microsoft puppet")
2005-02-24 Florian Mueller: Why Ireland is Dependent on Microsoft
2004-05-24 Richard Stallman gave a talk titled "The Danger of Software Patents" in Dublin at 19:30 organised by IFSO in association with TCD Netsoc.
2004-05-00 IFSO letter in view of Council Decision of 2004-05-18
2004-05-19 Newsforge on Irish motivations in Council
2004-05-18 Ireland negotiates Council Software Patent Agreement (in a concerted action together with Commissioner Bolkestein and the German Delegation)
2004-05-14 Call for Demo in front of Irish Embassy
2004-05-07 Hearing in Irish Parliament (apparently under complete control of ICT Ireland, which again seems to be controlled by corporate patent lawyers)
2004-04-00 FSFE Ireland mailing list April 2004
2004-01-00 Irish Presidency Sponsors
Backgrounds
People to write to in Ireland -- contact details for Bertie Ahern, Mary Hanafin, Mary Harney, Noel Dempsey, and Charlie McCreevy. Ahern, Hanafin, and Dempsey are national !MPs and should therefore try to question their government. McCreevy is now in charge of the dossier at the Commission. Harney was responsible for pushing the Council's (terrible) version of the directive through the 2005-05-18 session.
Tax Haven Policies
Ireland has within 20 years become one of the richest countries of Europe in terms of per-capita income by offering companies a low income tax rate of 10% and obtaining favorable terms from the US (no double taxation) and from the EU (harmonised internal market). This has lead large companies especially from the US but also Siemens and the like to move a large portion of their taxable income to Ireland. Irland levies 0% taxes on patent royalty income. This makes Ireland specially attractive for patent ventures such as Myrhold or Acacia.
Florian Mueller's Explanations
I'm relatively familiar with that Irish model for preferential treatment of U.S. companies that base their EU operations there. In 1995, I recommended to my friends at Davidson & Associates (parent company of Blizzard Entertainment, the makers of Warcraft, Starcraft, Diablo) to set up shop in Dublin, and they did it. They're still there.
The way it works is this:
- If you present a business plan to the Irish Development Agency (IDA) that you'll set up your European operations there and will create employment, then they give you those rock-bottom tax rates like 10% guaranteed for a number of years.
- Since Ireland is an EU member, you have no customs duties when shipping your stuff to the other 24 EU member states out of Ireland. Otherwise, if there were import duties, the deal would be much less attractive or even unattractive.
- Usually a U.S. company would have to pay some additional tax in the USA if it takes profits home from another country. In the particular case of Ireland, the U.S. government doesn't impose any additional taxes. That's because Ireland and the U.S. have historic ties, and it's also a de-facto subsidy of the U.S. government to its software industry.
- A local subsidiary like Microsoft UK or Microsoft Germany doesn't officially sell products. Those subsidiaries in the other 24 EU member states than Ireland only function as "marketing agencies". They get their costs reimbursed by the Irish operation but the profit itself is generated in Ireland where the tax rate is low. If they had any substantial profit in the UK or Germany, they'd pay a lot more than 10% on that.
Sources (supplied by Florian Mueller)
Digital Ireland -- Website of an Irish software company. It says:
- "The truth is that most of that export value comes from the localisation and distribution of product from US multinationals such as Microsoft, Oracle, Symantec and Lotus. The number of firms in the indigenous software sector is actually relatively modest. There is only a handful competing successfully on the world stage and even fewer listed on major stock exchanges. [...] Indeed, we do export software to the four corners of the Earth but most of it emanates from US companies based here rather than from home-grown firms. It is the balance - or imbalance - between indigenous and international software companies in Ireland that is most striking. In 2001, out of a total sector worth just over 13bn eur, multinationals accounted for 11.57bn eur, or 88.5pc, and of software exports worth 12.2bn eur in 2001 foreign-owned companies were responsible for nearly 11bn eur, or 89.5pc.
- Far from being a dominant force in the software world, it seems, Ireland should more correctly be seen as a highly effective route to market for US software firms. Although its software sits on 90pc of computer desktops around the world, Microsoft does little exporting from the US - Ireland is its principal gateway to world markets. Likewise, the Dublin arm of anti-virus giant Symantec is now the biggest volume shipper of boxed software in the European market.
- In short, if the 'US effect' is stripped out, we're left with a very different animal: not a software giant but an industry of much more modest proportions."
Coursework.info -- Similar information as above.
US article from Columbia University
- "The Irish economy is miniscule by European standards. A member of the E.U. since 1973, the country accounts for just 1% of the euro zone economy and was long known as one of the weaker links in the European economic bloc. Ireland was plagued, in the 1980s, by double-digit unemployment and emigration. It seemed that the country would find it impossible to break out of the cycle of losing jobs and many of its best and brightest graduates to foreign markets." "It was hard to get interesting jobs that paid well," explains Mr. O' Donovan. "The opportunities in the technology industry that you'd see abroad just weren't available in Ireland. We didn't really have a choice, but to leave. " Now those opportunities are flowing back. Since 1994, Ireland has been, by far, the fastest growing economy in the EU, racking up average annual economic growth of close to 10% -- compared to an average of 2.5% for the EU. When the numbers are out for 2000, that figure is expected to hit 11%, a performance the International Monetary Fund dubs "spectacular." Unemployment has tumbled to less than 4%, from a high of 17% in the early 1980s, and well below the EU average of around 9% and Germany's current 9.8% rate. In terms of output growth, Ireland ranked first among Organization for Economic Cooperation and Development member countries in the 1990s, having lagged near the back of that exclusive group in the early 1980s."
Irish Development Agency promoting Ireland as a location for patent royalty collecting businesses (--> PatentTrollsEn)
Socialist Democracy: McCreevy's Microsoft-friendly Policies -- Some interesting figures:
"In 2001 the approximately 1,200 multinationals contributed 1.9 bn eur in corporation tax -- over 44% of the total. One company, Microsoft, contributed around 10% of this total. The pressure is not to increase taxation on these companies but to reduce it further! "The differential in the tax rate compared with some other countries has certainly dropped in the last 10 years" says Paul McGowan, the chairman of accountancy firm KPMG's tax practice: "I think that in the medium term the rate will still be enough of an incentive to multinationals. But Ireland doesn't have an awful lot else going for it. There's no internal market and transportation costs are high."
Most recent Gates-McCreevy meeting -- With McCreevy being Ireland's former minister of finance (1997-2004) and Microsoft having been Ireland's largest tax-payer for a long time, there's no question they've known each other for a while.
Opening Statement of McCreevy (while commissioner designate) in the European Parliament: "Those of you who know me will know that I defend my point of view vigorously. This has given me the reputation of being stubborn. When it comes to matters of principle then I am persistent. I have always defended what I believed to be in the best interests of those I am asked to represent."
Explanations and Sources supplied by Arend Lammertink and Benjamin Henrion
http://www.finance.gov.ie/viewdoc.asp?fn=/documents/Publications/legi/financeact04.pdf (this finance act seems to have been voted by McCreevy, and covers royalties on IP)
http://www.kpmg.ie/financeact2004/seminar_slides/FinanceBill11March.pdf (Report by KPMG which confirms that Microsoft is using Ireland for the purpose of fiscal evasion in the EU)
http://mail.fsfeurope.org/pipermail/fsfe-ie/2004-May/001212.html (URLs with short quotes from them)
http://www.revenue.ie/wnew/press/228e38a.htm :
"The Minister for Finance, Mr Charlie McCreevy TD, and Ms Jean Kennedy Smith, the United States Ambassador to Ireland, today (28 July, 1997) signed in Dublin a new Double Taxation Convention between Ireland and the United States for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income and capital gains."
http://www.economist.com/displayStory.cfm?Story_ID=276995 : "So-called tax havens accounted for 1.2% of world population and 3% of world GDP, but 26% of the assets and 31% of the net profits of American multinationals (though only 4.3% of their workers), according to a 1994 study*. A more recent analysis, by James Hines of the University of Michigan, found that "taxation significantly influences the location of foreign direct investment, corporate borrowing, transfer pricing, dividend and royalty payments." Another recent study** asked, "Has US investment abroad become more sensitive to tax rates?" It analysed corporate tax-return data for 1984-92 (the latest then available), and found that by the end of this period the typical American multinational had become twice as likely to locate its operations where taxation was lowest as it had been at the beginning.
- "Are governments wise to engage in tax competition? Ireland's example suggests they may be. The country's recent economic boom owed much to low taxes on foreign firms moving there. Its GDP per head, which as recently as 1990 was 70% of the EU average, now exceeds Britain's, and is expected to exceed the EU average by around 2005. But within the EU, no other country has tried to compete head-to-head with Ireland on tax. By contrast, some developing countries have found that their attempts to attract firms by offering low taxes have been trumped by similar countries taxing even less."
- In some countries, the tax authorities have responded to tax competition by getting tough with multinational firms that operate within their borders but try to take advantage of lower taxes elsewhere. When filing tax returns in a high-tax country, multinationals typically claim that they have earned as little of their profits there as they can get away with. Instead, they try to attribute as much profit as possible to their operations in low-tax countries. They do this by arranging "transactions" between their subsidiaries in the two countries, and setting the "transfer price" of those transactions so that it has the desired effect on profits.
http://quote.bloomberg.com/apps/news?pid=10000085&sid=aHHCzI1gwQkg&refer=europe
- Irish Experience
- Ireland, the third-smallest economy in the EU before the May expansion, won $34.3 billion of foreign investment in 2003, compared with $36.1 billion in Germany, according to the United Nations Conference on Trade and Development.
- "It's outrageous of any of our peer countries to be telling us or indeed anybody else what to do with our tax policy," said David Dilger, chief executive of Dublin-based Greencore Plc, a food and sugar company. "I have absolutely no doubt that Ireland's tax strategy has been of huge benefit."
- Judging from the Irish experience, lower taxes don't have to lead to lower tax receipts -- the main concern in Germany and France about cutting corporate taxes. Ireland's corporate tax revenue last year climbed to 5.2 billion euros, or 16 percent of the total amount of taxes collected, from 425 million euros, or 4.6 percent in 1988.
- Europe will be the world's economic laggard in 2004 and will trail the U.S. for the 11th time in 12 years, the EU forecasts. Growth in the U.S. will outpace Europe 4.2 percent to 2 percent in 2004 and 3.2 percent to 2.3 percent in 2005, the EU predicts.
http://www.theregister.co.uk/2004/12/13/ms_loopy_fair_trade_claim/ :
- That's as may be, but dimly remembering that there's something a little sharp about Microsoft's European tax affairs, we called the luckless PR people. How much tax does Microsoft pay in the UK? Microsoft does not disclose this. Is it still the case that Microsoft ships the bulk of its European software via its European Operations Centre in Ireland? Yes, Microsoft UK is mainly a marketing operation. So, if the UK population stopped buying pirate Microsoft software and bought the real thing instead, it would be making some small contribution to the er, Irish economy. But not a vast one, because the tax advantages are why Microsoft operates out of Ireland in the first place.
Explanations and Sources supplied by Miluz
Ireland seems to be THE big computer compagnies paradise....
Enterprise Ireland: Intellectual Property
Patenting and Exploiting an Invention (in MS Word format)
ECDL Foundation in Dublin, and their "European Computer Driving Licence": "The conference, which has been organised by the European Commission and the Dutch Presidency, will be attended by 31 Ministers, the European Social Partners, the European Commission and more than 600 individuals and organisations in the education and vocational training sector from across the EU."
