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News : International Last Updated: Dec 19th, 2007 - 13:17:15

Dell Ireland used patent income to pay its senior executives tax-free dividends of $3.8m since 2003
By Finfacts Team
Nov 20, 2005, 18:31

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The Sunday Independent reports today that top executives at Dell Computer's Irish operation - including Vice President of Services and Operations in Ireland, Nicky Hartery - shared nearly $3.8m in tax-free dividends since 2003.

Ireland is the top location for US multinationals profits and last year an influential US report termed Ireland a semi-tax haven.

Nicky Hartery is responsible for Dell's manufacturing operations in Europe, Middle East and Africa, comprising Dell's state of the art manufacturing facilities located in Limerick, Ireland. Courtesy of Dell Inc

Ireland is the world's most profitable country for US corporations, according to analysis by US tax journal Tax Notes. In a study by the journal's Martin Sullivan, it was found that profits made by US companies in Ireland doubled between 1999 and 2002 from $13.4 billion to $26.8 billion, while profits in most of the rest of Europe fell. In his analysis Sullivan termed Ireland a 'semi-tax haven' for US firms, because firms are involved in real productivity in contrast with locations such as Bermuda.

The dividends paid by Dell were paid through a patent royalty company called Dell Research Ltd. Recently filed accounts show that it had accumulated $91.7m in retained profits, none of which is subject to tax under current Irish legislation.

Dell's Irish chief Nicky Hartery received a dividend of €279,000 from his 307 class-A shares in the company in 2004. Sean Corkery, manager of Dell's EMF3 plant in Limerick, manufacturing manager Denis Kelly, and vice presidents Patrick Casey and Daniel Creedon all received dividends of between €152,000 and nearly €172,000 from the business. Class-A shareholders netted nearly $1.53m in dividends last year, a further $1.47m a year earlier and $775,000 in 2003.

The newspaper says that in the year to January 2005, Dell Research made $24.1m in profits, up from over $18.2m a year earlier. "No charge to taxation as qualifying patent royalties are exempt from corporation tax," according to the company documents.

"Dell operates in a fully transparent manner and in accordance with the legislation of all jurisdictions where it is based. The company provides full disclosure on all aspects of its accounting and financial practices in line with both Irish and US regulations," according to a Dell statement issued to the Sunday Independent.

In recent weeks it has been reported that Microsoft was using an Irish subsidiary to reduce its tax bill by at least $500m per year. The Round Island firm had made profits of $3.8bn, paying $324m in corporate tax in Ireland.

Dell Research, an unlimited company, was incorporated in May 1991. The firm is audited by Pricewaterhouse Coopers. Annual accounts were cleared by Dell Research directors in late October. "Dell is involved in the design and development of new products and processes on an ongoing basis and as a result holds a number of patents. Patents in relation to the design work conducted at our facility in Limerick are registered by Dell Research," according to the company statement.

Last year, the US journal Tax Notes said: In low-tax Ireland, for instance, profits of subsidiaries of US multinationals have doubled in four years, from $13.4 billion to $26.8 billion. Profits from operations of U.S. multinationals in no-tax Bermuda have tripled, from $8.5 billion to $25.2 billion. Not surprisingly, those two tax havens rank as the number one and number two locations in terms of profitability for U.S. corporations operating abroad- surpassing long-time leading investment partners like the United Kingdom and Canada. But Ireland and Bermuda are only part of the story. 

The practice of using patent royalty firms as a means to pay top executives has been criticised in recent years.

In Dell's case, it is not clear if Hartery and his colleagues are benefiting from patents that resulted from research that was done in Ireland or in the US. It can be assumed that its the latter.

The Irish corporate tax rates of 10% - 12.5%, are about one-third of the US level.

Last Thursday, a New York Times editorial focused on the danger to America of exporting its ideas as virtually everything else in US manufacturing, is done overseas.

American Ingenuity, Irish Residence

The New York Times

The newest expatriates aren't people. They're ideas, and we can't afford to watch them go. The Wall Street Journal reported last week that Microsoft had trimmed more than $500 million from its annual tax bill by putting a small subsidiary in Dublin in charge of $16 billion in assets. The game is simple: a company sends intellectual property to a tax-haven country like Ireland and keeps the tax difference on the money it earns.

The world is used to seeing manufacturing businesses move to countries where labor is cheaper, like Mexico or China. But profits from software created and designed at Microsoft's headquarters, in Redmond, Wash., should be taxed in America, not Ireland. Unfortunately, outsourcing is extending itself to taxes, in large part because the United States Congress has given businesses the loopholes to do it. That means that America's greatest asset - its intellectual property - could be sent offshore to reduce corporate tax burdens.

Microsoft's subsidiary is raking in the dough from licensing fees for copyrighted software, much of it originating in the United States. And what is the subsidiary's legal address? A Dublin law firm that advertises its smarts in turning Ireland into a tax shelter.

Microsoft's response is that it pays all taxes required by law. Worldwide, that came to more than $4 billion for the company's last fiscal year. Tax avoidance is a gray area, and exploiting the cracks in the system isn't a crime. But the resulting damage, in terms of bigger budget deficits at home, sure makes it feel as if something is wrong.

Microsoft isn't alone. A host of American tech companies have set up shop overseas, both for business and tax purposes. And as for the destinations, they're more than just Ireland; Singapore, for example, also attracts businesses with low corporate rates. But one of Ireland's advantages for tax dodging over, say, Bermuda, is its plausibility as a home for genuine investment because it is a place where foreign corporations have built and staffed offices and plants. Microsoft has 1,100 full-time employees in Ireland, for example, compared with 40,000 in the United States.

That means, in a particularly hard-to-swallow twist, that the tax havens encourage companies to send increasingly large chunks of their businesses offshore as well. By pushing more of their jobs and investments overseas, the companies make the tax havens seem more legitimate.

American companies' successful hunt for low-tax opportunities overseas has been used as an argument for slashing corporate taxes at home. Maybe we should close the loopholes first, and provide the Treasury Department with the resources it needs to enforce existing law. After that, it's clear that meaningful corporate tax reform is needed. For an economy increasingly based on products with little physical substance - drug recipes, images, sounds, strings of ones and zeroes - it wouldn't take long to lose it all. 


US multinationals profit from tax havens

© Copyright 2007 by Finfacts.com

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