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How the IDA’s top client used Ireland to siphon billions offshore tax-free

Medical giant Abbott has deployed a complex network of offshore companies to legally shelter profits from tax officials.

Image: Shutterstock/Casimiro PT

IT HAS BEEN held up as one of Ireland’s biggest success stories in driving regional employment – a medical products giant with a 70-year history in the country and more than 3,000 staff dotted across 10 sites.

But Abbott, which has benefitted from around €50 million in IDA grants, has also deployed an aggressive tax avoidance structure to legally siphon billions in profits through Irish-registered companies to Bermuda, a notorious tax haven.

Meanwhile, through a myriad of subsidiaries and system of inter-company charges involving a variation on the infamous so-called ‘double Irish’ structure, its local operations have also legally shaved their tax bills with the Exchequer despite pulling in huge sales.

Most of the company’s financial dealings involving Ireland have been shrouded in secrecy until late last year, when EU-led changes to accounting rules exposed its subsidiaries to public view.

Since it was founded in Illinois just over 130 years ago, Abbott has steadily grown to become a global behemoth with more than 100,000 staff and over $30 billion in global sales.

Its interests span from making artificial replacement heart valves to selling protein drinks and snack bars. 

In Ireland, where it first set up a presence in 1946, the company operates manufacturing sites in several counties, making diagnostics tests in Lisnamuck, Co Longford, infant formula at Cootehill in Cavan, vascular devices at Clonmel in Tipperary and other products from sites in Sligo and Donegal.

It maintains that in the past five years, while adhering to all tax laws and regulations in Ireland, it has added €2 billion to the economy. 

The company’s main operations here are run through a Bermuda-registered company, Abbott Ireland, set up in 1983.

This company pays its taxes in Ireland. However it is owned outright by one of two Abbott subsidiaries incorporated in the Republic but resident in Bermuda, a country which has been labelled as the world’s worst corporate tax haven - and where no company taxes apply.

It is through these two companies that billions of Abbott’s income earned outside the US is funnelled.

shutterstock_446535319 The Bermuda capital of Hamilton Source: Shutterstock/Andrew F. Kazmierski

The Bermuda triangle

Abbott Ireland’s parent company, the Bermuda-resident Abbott Laboratories Vascular Enterprises (ALVE), had no staff on its books in 2017 but was listed as being responsible for sourcing and distributing the firm’s healthcare products and licensing its technology to related parties.

ALVE was incorporated in 2003 and reported a combined pre-tax profit of €1.96 billion in 2016 and 2017 on revenues of €5.2 billion. The firm’s registered office is listed as the address of its Dublin law firm, Matheson.

Its accounts noted that the firm would have owed €244.8 million in Irish corporate taxes at the full 12.5% rate, however that sum was reduced to zero due to its Bermuda residency.

The loophole, involving multinationals setting up Irish subsidiaries that are tax resident offshore, was closed to new entrants by then-finance minister Michael Noonan from 2015 after international pressure to crack down on tax avoidance.

However multinationals with the structure already in place were given until the end of 2020 to change the makeup of their subsidiaries.

In 2017, ALVE paid out dividends of €1.7 billion to its parent company, a sum that was followed with dividend payments totalling more than €1 billion in 2018.

As well as owning Abbott Ireland, it is the umbrella company for a string of international subsidiaries, including various firms based in the Netherlands, Belgium, Costa Rica, Gibraltar and the Bahamas.

The firm itself is a wholly owned offshoot of a second Irish-incorporated but Bermuda-resident operation, Abbott Products, a holding company that provides financing to other firms in the group.

This company, which also had no staff on its books, took in ALVE’s dividends and tens of millions in interest income in 2017, all of which were shielded from any company taxes.

Profits at the firm totalled more than $2 billion that year, a sum that would have resulted in a potential tax bill of $259.6 million (€229 million at current exchange rates) if the company had been resident in Ireland.

Abbott Products’ 2017 accounts include a note that from 2021 the company “may be regarded as tax resident in Ireland” assuming certain conditions weren’t met, meaning its worldwide taxable profits would be subject to Irish corporate tax after the ‘double Irish’ loophole closed permanently.

The company was sitting on accumulated profits of $7.1 billion at the end of 2017, worth some $887 million (€782 million today) in corporate taxes at Ireland’s full 12.5% rate.

shutterstock_735090982 One of Abbott's brands Source: Shutterstock/Sheila Fitzgerald

Hidden from view

Due to their ‘unlimited’ share structures, neither ALVE nor Abbott Products were required to file publicly accessible accounts under Irish laws, effectively concealing their finances.

However this changed late last year when accounting changes introduced on the back of an EU directive forced most unlimited firms to lodge annual accounts with the Companies Registration Office.

For this reason, it is not possible to determine the full scale or source of any profits garnered by either firm for the majority of the past decade.

Meanwhile, Abbott Ireland – the company’s main Irish operating arm with more than 3,000 staff on its payroll – is designated an ‘external company’ with a branch in the Republic, a structure that sheltered its finances from inspection for over three decades.

That also changed from 2017 with the new accounting rules. Abbott Ireland’s accounts for that year revealed that it reported turnover of nearly €1.6 billion in 2017 – up from €1.4 billion the previous year from distribution of its medical devices and nutritional products.

The billion-euro income was trimmed to a pre-tax profit of around €138 million for 2017 after €657 million was deducted in royalties for the use of the group’s intellectual property.

The company’s latest accounts show that Irish taxes of €19.4 million were due for the year, down from €23.9 million in 2016.

Other business

Abbott also owns a string of smaller subsidiaries in Ireland to handle aspects of the business like its local sales and distribution, international consulting and intra-group financing.

Abbott would not say how much corporate tax it had paid in Ireland across all its subsidiaries when contacted by TheJournal.ie, however a spokeswoman said that over the past five years it had contributed “almost €2 billion to the Irish economy” in taxes, payroll and purchases.

The company was “in full compliance with all local laws and regulations”, she added. A spokesman for the Revenue Commissioners said the agency could not comment on the affairs of individual taxpayers.

The Oireachtas Communications Committee has urged the Government to widen the funding regime for public service broadcasting, to include homes which do not have a television set.Ê Such a regime would involve the introduction of a public service broadcasti Source: Laura Hutton/RollingNews.ie

Double Irish

Abbott was one of four major pharmaceutical firms whose tax affairs were put under the spotlight last year in an Oxfam report, which suggested the firm could be underpaying close to $200 million in annual taxes worldwide.

That was based on applying the same profit margin to Abbott’s sales in all territories without the firm shifting profits to low- or no-tax jurisdictions. Much of the sum was being stripped from the national finances of developing countries, the report said.

Abbott’s spokeswoman said the company was “a responsible and transparent taxpayer, paying all of its taxes owed in every country in which it operates around the world”. It previously labelled the Oxfam report misleading.

The company is just one of a string of multinationals to use Irish-registered companies resident in tax havens like Bermuda or the Cayman Islands in parallel with its main local operations: a structure that coined the ‘double Irish’ nickname several years ago.

These non-resident firms based in countries with which Ireland does not have a tax treaty are usually used to hold the companies’ valuable intellectual property, which the offshore entities license related firms to use.

Such structures are completely legal under Irish regulations as they stand.

Google has continued in recent years to use the loophole to funnel billions in profits to Bermuda, while Apple shifted two of its Irish-registered offshore subsidiaries to Jersey in response to increased criticism of its tax affairs and changes to local rules.

Abbott did not respond to a question on when it planned to discontinue its use of the tax-avoidance structures.

Abbott and Ireland Inc

For one of the State’s largest employers and a poster child for regional development, Abbott has traditionally kept a low profile, courting little publicity despite its presence in six counties.

Behind the scenes, however, the company has been more active, participating in trade missions to China, Vietnam and the Middle East in recent years alongside Minister for Agriculture Michael Creed.

The firm also met with Creed to make sure its interests were protected in the case of Brexit in late 2016, while in early 2017 then-housing minister Simon Coveney invited the company to make a presentation at the launch of the National Planning Framework.

Abbott has also been held up as a success in the government’s attempts to drive more regional development, with the company name-checked by Taoiseach Leo Varadkar in July for its investments in Donegal.

Similarly, it has been held up by government ministers as being among the most prominent IDA client companies in response to various questions about job opportunities being created in Tipperary, Sligo and Longford.

Over the past two years, Abbott has been the single biggest recipient of IDA grants, receiving €19.2 million in aid during the period. Total State grants to the company to date are estimated at around €50 million.

In a statement, a spokesman for IDA Ireland said the organisation’s role was to “win foreign investment for Ireland … an extremely competitive sector internationally”.

Grants were “matched and multiplied” by client companies and their provision was assessed based on the potential impact on job creation and other factors, he added.

Neither IDA Ireland nor the Department of Business, Enterprise and Innovation responded directly to questions on whether it screened client companies based on their use of Ireland-centred tax avoidance structures such as those deployed by Abbott. 

IDA Ireland said all its clients agreed binding contracts that tied the firms to confidential conditions and milestones before they received funding.

shutterstock_173815040 Source: Shutterstock/360b

The international spotlight

Despite its participation in international efforts to crack down on tax avoidance, Ireland’s resounding success in attracting multinationals has been accompanied by intense focus on its perceived cosy relationship with US tech and pharmaceutical firms. 

It was one of seven EU countries – alongside the likes of Belgium, the Netherlands and Malta – accused of displaying “traits of a tax haven” recently by a European Parliament committee on tax avoidance.

The government has repeatedly said Ireland does not meet any of the international standards – such as applying no company taxes or refusing to exchange tax information with other administrations – for being considered a tax haven.  

Nevertheless, the country’s dependence on foreign investment has placed it at the centre of an ongoing global tug-of-war over where large, usually American companies pay their taxes.

Heavyweight EU member states like France have been pushing for multinationals’ taxes to be more closely linked to where their sales are generated, while Irish officials argue the right approach is to levy taxes based on ‘value creation’ – through the likes of intellectual property, product development and staff.

For its part, the US until recently laid claim to domestic firms’ global profits – although taxes only applied when the money was brought into the country. This effectively  incentivised American firms to stockpile cash in offshore tax havens.

However under President Donald Trump-led changes introduced in late 2017, the US shifted to a “territorial system” like most other developed nations, meaning foreign profits would be taxed at their source.

As part of the changes, a reduced, one-time 15.5% ‘transition tax’ was payable on cash the firms were holding overseas, leading to a flurry of companies transferring offshore funds back to the US.

In the case of Abbott, US filings show the firm came up with an initial estimate that it owed $1.46 billion for the transition tax based on all the profits since 1986 that had previously been sheltered from the Internal Revenue Service.

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