Is Ireland's Economic Miracle with a National Income of 100 Million Thanks to Apple? [Tech Talk]

Ireland's GDP Over Half Fake
Due to Activities of US Giants like Apple and Google
Tax Avoidance Strategies like 'Double Irish'
Conducted through Big Tech's Irish Subsidiaries

Population 5.02 million. Per capita income $102,217. These are the economic achievements of Ireland, a Western European island nation, in 2021. Once called the 'Celtic Tiger' and revered as a strong small country on the European continent, it plummeted during the 2008 subprime mortgage crisis but is now regarded as a country that overcame the slump and achieved a remarkable leap forward. Books and articles related to Ireland's economic miracle have been covered several times domestically as well.

However, the fact that Ireland's economic miracle is actually close to an illusion is not well known. Moreover, today, a significant portion of Ireland's Gross Domestic Product (GDP) is held by American big tech companies that have nothing to do with Ireland.

Not Just Low Corporate Tax... Ireland's Generous Intellectual Property System

Apple CEO Tim Cook
Photo by Yonhap News

After the 2008 global economic crisis, Ireland sought economic recovery by attracting global big tech headquarters through low corporate taxes. Currently, Ireland's corporate tax rate is 12.5%, much lower than most developed countries. Additionally, it offers a tax credit of 25% on research and development (R&D) investments.

However, the core of Ireland's tax competitiveness is not just the corporate tax rate. The real essence lies in its intellectual property (IP) system. Ireland supports up to 100% capital allowances on income generated from IP such as designs, software, copyrights, and pharmaceutical manufacturing methods.

The major businesses of American companies commonly called 'big tech'?Apple, Google, Microsoft (MS), etc.?are IP-based businesses. Apple owns only the rights to designs and blueprints without owning a single factory. Actual products are manufactured by subcontractors. For companies like Google and MS, intangible assets like software are even more important.

These IP-centric American companies have transferred IP ownership to Ireland and received enormous benefits. The problem starts here.

Apple iPhone Sales Registered Not in the U.S. but in Ireland

Apple iPhone 15 Pro

For example, Apple earns over 100 trillion won annually from iPhone sales alone. However, Apple's IP is owned by subsidiaries registered in Ireland. This allows Apple to register overseas iPhone sales revenue with its subsidiaries in Ireland. Then, the Irish subsidiaries send most of the collected money to the U.S. design and engineering departments, and the remaining payments to subcontractors in China, Taiwan, India, and other countries.

In this process, the Irish Apple subsidiary does almost nothing. However, since the product exports are considered to occur in Ireland, on paper, it benefits Ireland's GDP. The annual movement of hundreds of trillions of won (on paper) is a huge amount that can change the GDP itself of a small country like Ireland.

Apple Island's Cork Testing Center. Apart from this, Apple contributes very little to economic activities in Ireland. [Image source=Apple]

This has been explained somewhat briefly, but this is the basic 'Double Irish' strategy of big tech tax avoidance today. The 'Double Irish' involves the Irish subsidiary and another subsidiary established by it (a channel to transfer royalties without being caught by U.S. tax authorities) being used in the tax avoidance process.

The Double Irish is used not only by Apple but also by Google and even pharmaceutical companies like Pfizer (which is why Ireland sometimes appears as a pharmaceutical and chemical powerhouse). However, it is safe to say that Ireland actually gains very little from the enormous IP income generated by big tech.

The 'Leprechaun Economy' Created by U.S. Big Tech's Double Irish

Citizens enjoying beer at a pub in Dublin, Ireland [Image source=Yonhap News]

Due to this distortion, Europe sometimes calls Ireland the 'Leprechaun Economy.' Leprechauns are fairies appearing in Irish folklore, implying that Ireland's GDP and national income are no different from a mirage.

Irish statistical authorities are also aware of this issue. The Central Bank of Ireland annually publishes 'Modified Gross National Income (Modified GNI·M-GNI)' alongside the national GDP. This economic statistic excludes the IP income of U.S. big tech companies headquartered in Ireland.

The modified national income is less than half of the unmodified figure. In other words, the actual wealth of Irish people is similar to or even somewhat behind the Western European average.

In fact, the economic distortion caused by big tech companies causes headaches. First, because the gap between Ireland's real economy and the on-paper economy is so large, economic authorities find it very difficult to understand the actual situation of Irish people and companies.

Secondly, economic powers like the U.S. and Europe regard Ireland's tax policies as a thorn in their side. Especially from the U.S. perspective, the pressure is greater because it has to watch big tech tax avoidance through Ireland closely.

In fact, under the leadership of U.S. President Joe Biden, the G7 agreed in 2021 to introduce a 'global minimum tax.' The core is to apply a uniform corporate tax rate of at least 15% to multinational corporations. This measure targets tax avoidance models like the 'Double Irish.'