ONE OF THE interesting things about every Budget is how differently the domestic and international newspapers treat it.
In Ireland, rightly, the focus has been on medical cards and the Dole changes for young people, while internationally the focus is on the overall scale of the adjustment and whether it'll be enough for Ireland to get out of the bailout and 'prove' that austerity works.
Within hours of Michael Noonan taking to his feet on Tuesday, the Financial Times had changed its homepage to lead with a story that not many Irish people will have appreciated: how Ireland was clamping down on Apple's tax avoidance.
Michael Noonan told the Dáil that he was going to change Ireland's tax rules so that a company registered in Ireland couldn't be 'stateless' for tax purposes.
Apple is the most obvious company that benefits from this, but that night Minister Noonan conceded that there are a small number of others who also used it.
But how much of a difference will it make? To answer that, we have to look at how Ireland's tax system is set up.
The effective rate
We regularly hear quite a bit about how we shouldn't look at the 'headline' rate of corporate tax paid in Ireland, but rather the 'effective' rate.
This refers to the idea that not all companies pay 12.% tax on their profits, because they're entitled to claim some reliefs based on how much research and development they do here, or the size of the company, or the number of people they employ, and so on.
The truth is that for most large companies, the headline tax rate is 12.5%. The likes of Google don't get to claim any significant tax credits based on their profits in Ireland: in fact, what most people are never told is that Google actually pays the full 12.5% rate of corporate tax!
The myth lies in how these figures are reported. You might have read recently that Google Ireland Ltd recorded revenue of around €15 billion in its most recent accounts - but still only paid around €17 million in tax.
That's true - but that's because you don't pay tax on your revenue: you pay tax on your profit. That's where the difference comes in.
Put yourself in their shoes
Let's create a hypothetical example to show what's going on. Imagine that you're setting up a new shop to sell luxury watches. In your first year of business you sell 1,000 watches, priced at €1,000 each. (Obviously, in our fake world, the economy is doing well.)
That means you've brought in revenue of €1 million in your first year - but will you be paying €125,000 in corporate tax?
Of course not. For starters you have to pay the wages of the people who work in your shop. Then you have to pay the rent for your commercial premises. You probably have to pay for insurance and rates too - and, don't forget, you have to buy the watches from a supplier before you can sell them to a customer.
All in all, you might make very little profit - if, in fact, you make any. You could only make a profit of €80,000 for the year - meaning a tax bill of €10,000.
The point is that you shouldn't be considering your tax bill based on revenue, but on your profit.
This is where the hidden art of tax avoidance kicks in.
The dark arts of the bright companies
Let's now go back and apply this thinking to Google. (I should add from the outset that I'm presenting a slightly simplified explanation of Google's tax system, but the principle is generally true. Also, the figures have been rounded a bit for the sake of simplicity.)
Remember we said above that Google Ireland recorded revenue of €15 billion in its last accounts. That means Google Ireland (which accounts for all of Google's sales worldwide, outside the US and Canada) sold €15 billion worth of services - usually advertising space, but possibly also through the sale of email products to corporate users and so on.
That's not profit, it's revenue - and Google has some bills to pay first. For starters, it can't run its four buildings in Dublin for free: there are overhead costs associated with running them. Then there's the thousands of staff it employs here, and the perks it gives them like free food.
Ultimately (and these figures are only a rough approximation) Google might have around €13 billion left over once it takes care of its running costs.
But there are other costs to factor in. Google Ireland Ltd might be the company selling the ads, but Google Ireland Ltd doesn't own the technology that allowed those ads to be sold.
It has to rent that technology - from another Google company which is tax resident in Bermuda. It might pay commission of around €12.5 billion to its Bermudan cousin: a perfectly legitimate cost to cover the fact that Google Ireland shouldn't be allowed to make money for free when it doesn't own the technology it's using.
This means that Google Ireland is left with a legitimate profit of a (mere) few hundred million euro, on which it pays a full tax rate of 12.5%.
Meanwhile, it's the company in Bermuda that takes the bulk of the revenue. Conveniently enough, Bermuda happens to have no corporate tax system.
This means that, ultimately, the owners of Google's Bermudan company get to keep almost all of the money. (It just so happens that the owners of the Bermudan company are the same people that own the Irish one.)
There's one other thing to make clear; the company in Bermuda we mentioned? That's actually an Irish company, registered in Dublin at the Companies Registration Office on Parnell Square.
But under Irish law, you're only liable for corporate tax in Ireland if the bulk of your business operation is in Ireland. If you're registered in Ireland but you process all of your income and pay your shareholders from an office in Bermuda, Ireland turns a blind eye: it's up to the Bermudan authorities to tax you as they see fit.
Apple goes one step further
Because Irish tax law means an Irish company doesn't have to pay tax if it doesn't actually operate in Ireland, it's possible to exploit some differences elsewhere.
There are other jurisdictions where the rule is the inverse: where the government says you don't have to pay tax if you're not actually registered there.
This means that you can have an Irish-registered company which actually processes all of its income in Country X, while at the same time the government of Country X turns a blind eye because it considers the company to be 'Irish' and therefore the responsibility of the Irish taxman.
This is what Apple has done: it has managed to exploit the inconsistencies in the tax laws of various countries so that, for a lot of its worldwide income, it doesn't end up paying any tax at all. It is, basically, 'stateless' for tax purposes.
What Michael Noonan has announced is that, from 2015 onwards, an Irish company won't be allowed to be 'stateless'. If it doesn't have another country in which to file its taxes, it will by default have to pay its tax in Ireland.
That means that Apple's Irish-registered subsidiaries, which are currently able to avoid paying tax in any country, will by default have to start paying in Ireland (unless they use the next 14 months to set up another system where the Irish company funnels its cash through a sister in Bermuda or elsewhere).
So - will it work? Well, in order to safeguard their billions, a corporate giant isn't likely to lose much sleep over the minor stress of hsving to set up a new offshore company. It'll just require some creative corporate rearrangement but not much will change.
As for wholesale tax avoidance? Well, that will require a more conjoined global effort. There's nothing Ireland can do about Bermuda's 0% tax rate - no matter how much US senators Carl Levin and John McCain try to argue otherwise.
As long as global corporations can act with more consistency than the countries they trade in, the ball will always be in their court.
