On the sly: Most top US tech companies avoid European taxes

A majority of top US software and internet companies declare their tax residence in a country outside of their main market, which bars tax authorities’ access to their income statements.

Sixteen of the 20 biggest US software companies, including Microsoft, Adobe, and Citrix, do not have an office registered in their main European markets, and instead report sales in Europe’s tax havens- Ireland, Switzerland, the Netherlands.

The average reported tax on US earnings by the top 37 tech firms was 6.8 percent in 2012, a Reuters report concluded, based off hundreds of corporate filings.

Ireland has a corporate tax rate of 12.5 percent, Switzerland 8.5 percent, and Luxemburg a local rate of 6.75 percent. If the majority of sales are in France or Austria, for example, which have corporate tax rates of 25 percent and 33.3 percent respectively, tech firms can more than halve their tax burden.

Dell, Google, Expedia, and Yahoo set up permanent establishments (PE’s) outside major markets to reduce their tax bill, a simple way to channel revenue.

A concerning aspect of PE’s is that German, French, and British tax authorities cannot access income nor taxes generated on their sovereign territory.

“Corporation tax is another cost to business,” Chas Roy-Chowdhury, head of taxation at Chartered Certified Accountants, told Reuters.

“Higher payments could mean lower wages for staff, higher prices for consumers and lower pension fund dividends received by investors,” Chowdhury added.

At 12.5 percent, Ireland has the lowest tax rate in Europe. Dublin is a destination for top US tech companies- Apple, Google, Facebook, Twitter, Microsoft, eBay, Amazon, LinkedIn, Yahoo, IMB, Dropbox, Oracle and Cisco Systems all have PE's in Ireland.

Under scrutiny

Apple received the lion’s share of media attention as lawmakers and media criticized the company for ‘double-dipping’- operating out of Ireland, which is not their focus market in Europe, but they are not an anomaly in the tech industry. Of the top 50 companies, only 13 declared headquarters in the same market they generate income.

Google has said it chose Ireland as its Europe, Middle East, and Africa central office because of good logistics, an educated workforce, and low taxes.

Microsoft has defended its Dublin headquarters, saying it’s the best location to effectively serve customers, and deny they selected it for tax purposes.

At the height of the tech-mini  boom in 2006, Ireland had about 420,000 foreign nationals living in Dublin and surrounding economic centers, but many of the offices have trimmed their staff.

Nearly half of PayPal’s staff in Ireland are non-natives, Vice President Louise Phelan, vice president of global operations told Bloomberg. The expat community helps boost local commerce, but doesn’t help the recession damaged country fight its 7.6 percent unemployment rate.

Lawmakers and NGOS alike are after companies not paying their fair share of taxes where they generate profit.

Last week the Organization for Economic Co-operation and Development (OECD) delivered a plan to take down the corporate tax avoidance scheme, which has become a highly politicized issue, especially in markets like Ireland, whose taxpayers already shoulder the burden of the banking bailout.

"PE issues are clearly important, and this is why we have a couple of actions dedicated to this," Pascal Saint-Amans, director the OECD's Center for Tax Policy told Reuters.

When probed on tax-avoidance issues, top tech firms have told media sources that they adhere to tax rules in all countries where they operate.