If you want an example of how major Western companies manage their great taxation sidestep, take a look at Apple Inc.’s chief supplier.
Hon Hai Precision Industry Co., the flagship of Foxconn Technology Group and the largest assembler of iPhones, booked $57.4 billion in revenue from the Republic of Ireland in 2020, according to its annual report. That’s around 25% more than the previous year. By contrast, revenue derived from the Americas climbed 4% to $58.8 billion.
That massive figure could have you thinking that each of Ireland’s nearly 5 million people bought $11,500 worth of gadgets from Taiwan-based Foxconn last year. But of course, they didn’t. The data reflect Ireland’s low corporate tax rate of 12.5%, well below most other nations, and the incentive for companies to invest in the European Union member so they can book revenue there.
A few years ago, Foxconn’s chief financial officer pointed out to me that the geographical designation for the revenue is based on billing address, not shipping destination. Invoices are sent wherever the customer wishes. And it seems that some clients want that place to be Ireland.
To be clear, not all of those products will be iPhones, or even for Apple. The Cupertino-based company was Hon Hai’s single-largest client last year, accounting for 54% of revenue. But it also makes hardware for Sony Corp., Cisco Systems Inc., Ericsson AB, and dozens more.
As Finance Minister Paschal Donohoe bluntly pointed out last week, “I have often said that GDP is not an accurate measure of what’s going on in the Irish economy.”
Tax maneuvers like this and in other countries have annoyed much of the rest of the world, where rates are higher, and resulted in the Group of Seven nations 1 reaching an accord last weekend on a minimum global rate of 15%. This may also include a top-up tax that forces companies to pay the difference back to their home country.
For the G-7 agreements to actually hold weight, they must be ratified by legislatures in each member, Bloomberg Intelligence analyst Andrew Silverman wrote recently. The changes might start impacting US companies next year at the earliest, with full implementation by about 2025. Firms with substantial operations in other low-tax territories like Singapore and Luxembourg could also get hit, he says.
Until then, Ireland’s hunger for Apples might not subside. If the country’s corporate tax rate remains below global levels, with the only impact being a top-up payment to the US, there may not be a lot of benefit for companies in switching billing addresses back home. It’s possible that the Irish tax dance will continue.
Bloomberg
