Picture: RAZIHUSIN/123RF
Picture: RAZIHUSIN/123RF

If you want an example of how major Western companies manage their great taxation sidestep, take a look at Apple’s chief supplier.

Hon Hai Precision Industry, the flagship of Foxconn Technology Group and the largest assembler of iPhones, booked $57.4bn in revenue from the Republic of Ireland in 2020, according to its annual report. That’s about 25% more than the previous year. By contrast, revenue derived from the Americas climbed 4% to $58.8bn.

That huge figure could have you thinking that each of Ireland’s nearly 5m 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 EU member so they can book revenue there.

A few years ago, Foxconn’s CFO 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, Cisco Systems,  Ericsson, 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 manoeuvres such as this and in other countries have annoyed much of the rest of the world, where rates are higher, and resulted in the G7 nations reaching an accord last weekend on a minimum global rate of 15%. That may also include a top-up tax that forces companies to pay the difference back to their home country. 

For the G7 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 affecting US companies next year at the earliest, with full implementation by about 2025. Firms with substantial operations in other low-tax territories such as Singapore and Luxembourg could also get hit, he said.  

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 Opinion. For more articles like this please visit Bloomberg.com/opinion.

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