Business Opinion: The revelation - if you could really call it one - that Google, Microsoft and a raft of other US multinationals are funnelling millions in royalties through Irish shelf companies should not come as any sort of surprise. Yet, it still does.
There are a couple of reasons. The first being the sheer size of the transactions. Over $2 billion (€1.7 billion) a year in royalty payments in the case of Microsoft and €388 million by Google.
The other reason is that many people actually believe the reasons put forward by the IDA and others for why these companies locate here.
In the case of Google, for example, we were told by the Tánaiste in March 2003 that the internet search giant's decision to set up its European operations centre in Dublin "is a significant step in the implementation of our strategy to make Ireland a leading player in the digital media industry. The investment made by the State and the private sector over the past three years in global connectivity and state of the art technical infrastructure provides Google and other digital media companies with the environment they need to grow and develop their businesses into the future".
Similar sentiments were expressed by the Tánaiste in September of that year when eBay arrived. Its decision "is an indication of the wealth of skills and knowledge available in Ireland and also reflects the significantly improved levels of access, business services and infrastructure, particularly in telecommunications in Dublin," according to the then Minister for Enterprise Trade & Employment.
Contrast this with comments made by Google in its third quarter earnings statement for 2005. It notes that its tax bill has fallen from 39 per cent to 31 per cent "because proportionately more of our earnings in 2005 compared to 2004 are expected to be recognised by our Irish subsidiary and such earnings are taxed at a lower statutory tax rate...".
There is, to use that much abused phrase, something of "an appalling vista" in all this. Could it be possible that many, if not all, of the significant "job wins" in the key area of high tech research and development have been little more than fig leaves for massive tax schemes?
Are the jobs that have been created just the bare minimum required for the structures in question to pass muster in the eyes of the US tax authorities? Is the additional cost of basing these jobs here, rather than a low cost location, just part of a complex equation the solution to which is the size of US multinationals "effective tax rate"?
It also raises the rather intriguing prospect of some cabal of Irish and US tax lawyers and accountants working hand in glove with the Government and state agencies to put in place the legislative frame work - such as a zero tax rate on royalties - that makes such schemes work. Could it be that their activities - and not our young workforce, education system, etc - is now the well spring of economic prosperity?
Let's hope so. It may be a bit hard to swallow for a culture such as ours which has a tendency to believe its own publicity before receiving a rude awakening. But, fundamentally it's a much more plausible explanation for why the Republic has been so successful in attracting the current crop of high tech giants. It also represents a competitive advantage that our rivals and aspirant rivals will find hard to emulate.
