Originally published on Wed May 22, 2013 9:35 am
Apple was criticized in a Senate committee hearing Tuesday for using complex accounting to minimize the corporate taxes it pays. One key piece of the company's tax strategy: It funnels lots of its profits through subsidiaries in Ireland.
Offering low corporate tax rates has been a fundamental part of Ireland's economic strategy for decades — a way to get foreign companies to set up operations in the country.
In the hearing, Apple CEO Tim Cook mentioned that Apple has had a subsidiary in Ireland since 1980, when the country was recruiting international tech companies and offering tax deals.
As it happens, the idea of using taxes to lure foreign companies goes back even further than that, according to Frank Barry, an Irish economist who has studied the country's tax history.
After World War II, the Irish government used rebuilding funds provided by the U.S. government to, among other things, hire U.S. consultants, Barry says. The consultants produced a 100-page report that was a broad look at the Irish economy. (First line: "In the Irish economy, cattle is king.")
On one page, the report noted that Puerto Rico — another small island economy — had done well by lowering its corporate tax rate, which attracted multinational corporations.
"The U.S. consultants downplayed it," Barry says. "But our bureaucrats here spotted it and said, 'This has the makings of a very good idea.' "