Snow Turns Attention To US Firms In Ireland

by Glen Shapiro, LawAndTax-News.com, New York

14 February 2006

Speaking before the Senate Finance Committee last week, US Treasury Secretary, John Snow confirmed that the US government would be taking action to prevent US multinationals from reducing their tax bills by billions of dollars using subsidiaries located in low tax jurisdictions.

According to reports, Committee Chairman, Chuck Grassley cited the example of Microsoft, which last year reported $9 billion (or 22% of its gross profits) through its Irish subsidiary, thereby taking advantage of Ireland's 12.5% corporate tax rate.

The US Treasury has pledged to limit the amount by which US tax bills can be reduced in cost-sharing arrangements such as that employed by Microsoft, and according to the Sunday Times, Mr Snow told Senator Grassley and the Finance Committee that:

"We would expect to have them (the new regulations) made final some time in 2006."

He went on to explain that:

"I think what this will do is reduce the opportunity for abuse here, and certainly remove some of the incentives to engage in the sorts of behaviours that deny revenues to the United States Treasury."

However, the US already has extensive transfer pricing Controlled Foreign Corporation laws which apply US tax to unremitted foreign profits, and it is not clear how far these could be strengthened without driving companies out of the US altogether. And nobody has suggested that Microsoft is guilty of 'abuse', although the company gets plenty of abuse from politicians, of course.

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