Sasha Boshart

On October 15, 2013, Ireland announced as part of its 2014 budget that it planned to make it illegal for a company to have no tax domicile.[1]  The change in the tax law means that companies registered in Ireland for tax reasons will no longer be allowed to be ‘stateless’ in terms of their residency.  It has been reported that Apple sheltered $40 billion from taxation using this tax loophole.[2]

The issue first garnered attention in April of 2012 when the New York Times exposed the tax avoidance strategies that Apple used to save itself billions annually.[3]  The U.S. Senate Subcommittee on Permanent Investigations held a hearing in May of 2013, finding that Apple used “a complex web of offshore entities,” keeping billions of dollars in profits in Irish subsidiaries and paid little or no taxes to any government.[4]  Apple had three subsidiaries in Cork, Ireland, where the corporate tax rate is just 12.5%, but due to the now-closed loophole, these subsidiaries did not appear to be tax-residents of any nation.[5]  Apple revealed at the hearing that its tax arrangements in Ireland dated back 30 years, having been negotiated with the Irish government of the day.  Apple is incorporated in Ireland but has no tax residency for non-US profits.[6]  Senator Carl Levin said the company had sought the “holy grail of tax avoidance” with the structures.[7]  Levin urged closing loopholes like those he said Apple used to avoid $9 billion in U.S. taxes in 2012.

Irish leaders protested angrily against the Subcommittee’s characterization of Ireland as a facilitator of tax avoidance.  Parliamentary hearings were subsequently held to review Ireland’s tax rules amid concerns that damage to its reputation could jeopardize the foreign investment on which its economy relies heavily.

While Apple isn’t the only company doing this, it was a pioneer, and the first to take advantage of the complex scheme now called the “Double Irish.”  Basically, companies like Google, Microsoft, and Apple, have Irish-registered and tax resident subsidiaries that make sales to customers.  These subsidiaries then pay large, tax-deductible sums of money in royalties to their Caribbean tax-resident affiliates, ensuring that profits are channeled to a zero-tax jurisdiction such as Bermuda.[8]  That technique is now practiced by hundreds of other corporations, some of which admit that they have directly imitated Apple’s methods.[9]

Ireland’s decision to change its taxation system has received positive feedback from lawmakers in the U.S. “Ireland’s promise to reform its tax rules to stop multinationals from using Irish subsidiaries to escape or defer paying taxes anywhere in the world is encouraging,” Senators Carl Levin and John McCain recently said in a joint statement.[10]  “Important questions do remain . . .” they said, “including whether the new rules will continue to allow Irish subsidiaries to dodge taxes by, for example, excluding substantial income from the 12.5% Irish tax rate, calculating taxable income in ways that produce a lower effective tax rate, or simply declaring tax residency in a tax haven with no corporate tax.”[11]

But firms would be able to nominate any country as their tax residence, leaving another even bigger loophole open.  That includes countries such as Bermuda, which, as mentioned previously, offer zero tax rates.  Because of that, the Irish change announced on October 15 may not make much difference to the amount of tax paid by Apple.  In fact, Irish Minister of Finance Michael Noonan admitted to the Wall Street Journal that the proposed changes were developed with input from companies affected by them.[12]  But, Noonan also said his country was committed to reform.  “Let me be crystal clear.  Ireland wants to be part of the solution to this global tax challenge, not part of the problem,” he said.  With the new changes, Noonan is attempting to reassure the Irish public that large companies were not going to be able to avoid paying corporate income tax, but he refused to budge on increasing the rate of taxation, despite calls from people inside and – more vocally – outside of Ireland to do so.  “We are 100% committed to the 12. 5% corporation tax rate,” he said on Tuesday.  “This will not change.”

Google, Microsoft and Apple say they follow tax rules in every country where they operate.  Apple has denied using “tax gimmicks” claiming it is one of the highest US taxpayers, having paid $6 billion (£3.76bn) in federal corporate income tax for the 2012 financial year, and expects to pay over $7 billion this year.  A spokesman for the Irish Department of Finance declined to explain the tax change but denied it was due to U.S. pressure.[13]




[1] Ireland is to close a tax loophole used by Apple, BBC News (15 Oct. 2013), (last visited Oct. 20, 2013).

[2] Id.

[3] Proposed Irish budget could shut door on Apple tax-avoidance loophole, (Oct. 15, 2013), (last visited Oct. 20, 2013).

[4] See Offshore Profit Shifting and the U.S. Tax Code – Part 2 (Apple Inc.), U.S. Senate Permanent Subcomm. on Investigations, (last visited Oct. 22, 2013).

[5] David Gilbert, Apple’s Tax Loophole Closed by Irish Government, Int’l Bus. Times (Oct. 15, 2013, 4:12 PM BST), (last visited Oct. 20, 2013).

[6] Cautious praise to Ireland closing Apple tax loophole, Agence France-Presse (Oct. 16, 2013, 13:01) (last visited Oct. 20, 2013).

[7] Offshore Profit Shifting and the U.S. Tax Code – Part 2 (Apple Inc.): Hearing Before the S. Permanent Subcomm. on Investigations, 113th Cong. 2 (2013) (statement of Sen. Carl Levin, Chairman, S. Permanent Subcomm. on Investigations), available at

[8] Tom Bergin & Padraic Halpin, Ireland to close Apple’s tax loophole, but leave bigger one open, Reuters (Oct. 15, 2013, 1:06 PM EDT), (last visited Oct. 20, 2013).

[9] E.g., Proposed Irish budget could shut door on Apple tax-avoidance loophole, supra note 3.  See also Cautious praise to Ireland closing Apple tax loophole, supra note 6.

[10] Kevin Drawbaugh, Measured praise from U.S. senators on Irish tax loophole change, Reuters (October 15, 2013, 7:48 PM),,0,3151569.story (last visited Oct. 20, 2013).

[11] Cautious praise to Ireland closing Apple tax loophole, supra note 6.

[12] Tracy Staton, Pharma dealmakers, listen up: Ireland may close a popular tax loophole, (Oct. 17, 2013), (last visited Oct. 20, 2013).

[13] Drawbaugh, supra note 10.

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