Elaine Byrne & Justin O'Brien

SYDNEY: 26 MAY 2013: Ireland was described as a "tax haven" in the US Senate last week. Apple's use of entirely legal yet ethically dubious tax arrangements has raised significant questions around global tax policy co-ordination and the role of tax havens. While there is no suggestion that Apple engaged in illegal conduct, its creative tax accounting has put Ireland centre stage in the growing international momentum for tax reform.

The Congressional Permanent Sub-Committee on Investigations, led by Senator Carl Levin, released a 40-page memorandum last Monday, referencing Ireland on 135 separate occasions. It revealed how blurred the dividing line between the legitimate exploitation of loopholes and illegitimate exploitation has become.

The primary vehicles for achieving industrial scale innovation in aggressive tax avoidance were two entities incorporated in Ireland. The memo, which is co-authored by former Republican presidential nominee Senator John McCain, punctures the carefully choreographed image Apple has cultivated. Tax avoidance on such a scale is hardly the epitome of west coast counter-culture cool.

As Levin explained: "Ireland asserts tax jurisdiction only over companies that are managed and controlled in Ireland, but the United States bases tax residency on where a company is incorporated." The result was to make Apple effectively immune from taxation. The Irish-registered but US-managed subsidiary of Apple therefore avoided filing any tax returns between 2009 and 2012 in spite of receiving $30bn of income.

Apple shifted $74bn in worldwide sales income away from the United States to Ireland where Apple negotiated a tax rate of less than two per cent. This two per cent sweetheart deal was significantly below Ireland's corporation tax rate of 12.5 per cent. Apple Sales International in fact paid less than that. In 2011 alone, while Ireland was grappling under the weight of an austerity agenda, Apple Sales International contributed tax revenues of 0.05 per cent of profit to the Exchequer.

The Permanent Sub-Committee on Investigations does not pull its punches. "These figures demonstrate that Ireland has essentially functioned as a tax haven for Apple, providing it with minimal income tax rates approaching zero. It's not just Apple in the firing line.

The US Senate also found that Irish subsidiaries shaved $2.43bn off Microsoft's American tax bill. Google paid just €22.2m on its €9bn European profits that are registered in Ireland. The US's 35 per cent corporation tax rate incentivises companies like Amazon, Facebook, Pfizer, Johnson & Johnson and Citigroup to legitimately wash their profits through Ireland's tax-loopholes and 12.5 rate.

Tax commentator Richard Murphy puts it more bluntly, describing Ireland as a "doormat state – a place where large companies can wipe the stain of their tax avoidance from their feet via the local tax system".

The yawning US deficit can no longer tolerate this Irish Houdini trick. Last Thursday's 60 Minutes programme on American television suggested that the game was up. "Six hundred American companies are in Ireland and they employ

100,000 people," the presenter, Lesley Stahl said. Then a shiver went up every Irish minister's spine when she added: "Those are jobs that aren't here and they moved to Ireland because of taxes." America wants these jobs and taxes back on US soil.

Multinationals account for almost 10 per cent of Ireland's workforce. An attractive tax regime has been a fundamental part of Ireland's economic strategy and business model for decades. What happens when the inevitable occurs and global tax reform forces Ireland to change?

So far, the Irish response has been robust if not defensive. The world's tax havens and loopholes will not be fixed by one small island like Ireland prompting action. But there is no sense of urgency.

In his reply to the Senate sub-committee, the Apple chief executive, Tim Cook, emphasised that the corporation was fully compliant with US tax rules, but ignited a political hand grenade by confirming the Senate Investigation report that the corporation had secured a secret tax rate of two per cent in negotiations with the Irish Government.

The Taoiseach has sharply denied this, telling the Dail that "Ireland does not – I will repeat, does not – do special tax-rate deals with companies. We don't have any special extra-low corporate tax rate for multinational companies." Michael Noonan went much further. Ireland will not be the "whipping boy for some misunderstanding in a hearing in the US congress" he said, arguing that the two per cent was "wrong and misleading".

Either Apple or the Irish Government are having difficulty with the truth. It would appear plausible that Apple has been able to exploit a legacy deal dating back to its initial incorporation in Ireland in 1980, which the present Government seems unwilling to consider problematic.

Speaking in Brussels, Eamon Gilmore also shrugged off criticism, saying the problem and its solution lay elsewhere. "They are issues that arise from the taxation systems in other jurisdictions, and that is an issue that has to be addressed first of all in those jurisdictions," he said. Still missing in action are his Workers Party, Democratic Left and Labour ideological clothing.

Corporate tax avoidance is bang centre on the agenda. A debate that Ireland, although exceptionally reluctant to engage, may have no choice but to participate in. Traditionally, any public uttering of alternative corporate tax rates or the influence of the IFSC Clearing House Group on government policy are regarded as tantamount to economic treason, particularly in the context of austerity. The lock on Pandora's box cannot depend on the kindness of strangers and the goodwill of our European partners and the United States.

At Wednesday's EU summit, the French President Francois Hollande warned that 'impunity' was coming to an end for those "who thought they could avoid taxation by turning to tax havens". The EU is attempting to introduce legislation that will stop corporate profit shifting and bring greater public scrutiny to corporate profits. A draft of new global tax rules will be published by the OECD in July which seeks to change tax structures that exploit differences between different countries' tax codes. In April, the US Treasury Department published a list of global tax loopholes it hopes to close.

The role of tax havens, like Ireland, is a central matter for discussion at the G8 summit in Lough Erne next month. In advance of that summit, David Cameron sent a letter entitled 'Tax Evasion and Aggressive Avoidance' to Herman Van Rompuy, President of the European Council.

The British prime minister must be seen to act after a UK parliamentary committee accused Amazon, Google and Starbucks of an "immoral" use of secretive and complex company structures to avoid paying tax on British profits.

Even the Pope has an opinion on tax havens when he argued recently that the capacity for corporations to set the terms of financial regulation and tax codes shows how a "new and invisible and at times virtual tyranny is established, one which unilaterally and irredeemably imposes is own law and rules" and is beyond control.

The Taoiseach Enda Kenny is between a rock and a hard place. Ireland's presidency of the European Union means that the Taoiseach and Tanaiste Eamon Gilmore will be in Fermanagh for the G8. Irish self-interest is in conflict with the international impetus for tax reform or at least the perception of reform.

Ireland's tax code is legally kosher but ethically suspect. What price are we prepared to pay for the formal designation of Ireland as a tax haven?

Dr Elaine Byrne, Senior Research Fellow, Centre for Law, Markets and Regulation

Prof Justin O'Brien director of the University of New South Wales's Centre for Law, Markets and Regulation and an Australian Research Council Future Fellow

This piece was originally published in the Sunday Independent on 26 May 2013