Question: Why is Facebook headquartered in Ireland?
Answer: Because Ireland has a low corporate tax rate thereby saving costs and increasing profits.

See below for details.

The more technical name for this phenomenon is called the Double Irish Arrangement or Base erosion and profit shifting (BEPS). Wikipedia has the details:

Under OECD rules [for example], if Microsoft charged a German end-customer, say $100, for Microsoft Office, [for] a profit of $95, [that profit] would be realised in Germany, and German tax payable. [However], Microsoft can additionally charge Microsoft Germany $95 in IP royalty payments on each copy of Microsoft Office, ensuring that its German profits are zero. The $95 [in IP payment] is paid to the location in which the IP is legally housed.…

The Double Irish enables the IP to be charged-out from Ireland, which has a large global network of full bilateral tax treaties. The Double Irish enables the hypothetical $95 which was sent from Germany to Ireland, to be sent-on to a tax haven like Bermuda, without incurring any Irish taxation.

Facebook also did what that last line describes. According to an article in ProPublica by Paul Kiel, “Facebook… set up an Irish company that declared itself to have management in the Cayman Islands. This was a trick to avoid paying even Ireland’s low 12.5% tax rate on the profits.” [ProPublica, Jan 2020]

The Double Irish is done

As of 2014 the EU put an end to the Double Irish loophole. Big companies using it were given time until 2020. Some big companies using the loop hole are Facebook, Google, Microsoft, and Pfizer. See article with title “Why do all major tech companies place their European headquarters in Dublin?”

Question: What do you do when the laws change and your hand is forced and you must pay more in taxes?
Answer: Call it a victory and claim moral high ground.

Here’s Mark Zuckerberg, Facebook’s CEO: “Tech companies should serve society. That includes at the corporate level, so we support the OECD’s efforts to create fair global tax rules for the internet… I believe good regulation may hurt Facebook’s business in the near term but it will be better for everyone, including us.” [source]

Costs matter

Costs Matter is a series that asks different questions all of which have the same answer: to better manage costs. The costs are frequently economic though not always. The series focuses narrowly on the impact of costs. It does not claim these costs are the only reason things are as they are.

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