Merck Ireland Clouds Up — Irish Finance Minister: “The Jig’s Up” — On “Stateless” Tax Free Irish Subsidiary Structures

Well, it’s not on the books yet — but Irish Finance Minister Noonan has reversed course, on the famous “Double Irish, With A Dutch Sandwich” multinational tax cha-cha. As recently as July 2013, he had testified that he thought there was no compelling reason to close the “stateless” tax minimization loopholes available only in Ireland. He said so, in comments related to hearings on Capitol Hill in DC, about Apple, Google and Microsoft tax minimization structures through use of Irish, Dutch and Cayman subsidiaries, via intercompany intellectual property licenses and intercompany debt issuances.

Of course, Merck, Pfizer, Baxter and Abbott — just to name a few pharmas — presently rely on these same structures to minimize taxes, and sweep cash around the globe, mobilizing it for various uses, at very favorable tax rates. [More of my earlier background on this, here — and note my prediction there, in May of 2013, that this fancy “Stateless Double Irish” strategem would come to an end, and soon. Soon is. . . today, BTW.]

So, look for some creative new tax ideas, and a fair bit of new subsidiary creation activity in 2014, at Whitehouse Station, if Minister Noonan makes good on his promise, over on the Emerald Isle. Here is last year’s material subsidiary list (note the broad array of Irish and Dutch and Carribean subs!). It will look more than a bit different, come late 2014 — and Merck may see some tax “leakage” — at year end 2014 (i.e., it may pay a higher effective average tax rate, overall, around the globe). And that negatively impacts cash flow, one for one. We shall see. Here is a link to a great item — courtesy of AppleInsider — and a bit of it (do go read it all!):

. . .Ireland’s Finance Minister Michael Noonan said on Tuesday that he plans to push legislation to close a loophole in the country’s corporate tax laws that allows [multinational public] companies. . . to avoid paying billions of dollars in taxes. . . .

Noonan’s promise to amend Ireland’s tax code comes after calls for reform from U.S. Senators John McCain and Carl Levin, who in March said Ireland was a “tax haven” for multinational companies. . . reports Bloomberg.

“I will be bringing forward a change to ensure that Irish registered companies cannot be ‘stateless’ in terms of their place of tax residency,” Noonan said. “Ireland wants to be part of the solution to this global tax challenge, not part of the problem.”

The statement marks a change in course from a decision passed by the Irish parliament’s finance committee in July, which voted to not question [the multinationals] over their use of the country’s tax code. . . .

So — my NEW (not so bold) prediction is that tax-haven structuring will continue, but we may see quite a bit of frictional changings-of-the-guard, during 2014. When the dust settles, it is likely that some other jurisdiction will be a hands-down winner — collecting and keeping the jobs created by housing offshore finance companies, for the likes of Merck, Apple and Google. That is, each will have some subsidiary HQs — in new haven locales. I’ll keep the readership posted. [Sadly, there is not yet any House Republicans’ solution on the looming US debt default those same Republicans have engineered — so, no gin & tonic, for me. Ah well. Sad how that works. Off to a workout, instead, then.]

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