International News

By Padraic Halpin and Conor Humphries

DUBLIN (Reuters) - Ireland is preparing to officially reject accusations by U.S. Senators this week that it acts as a tax haven for large multinationals and launch a diplomatic offensive to repair the damage done to its reputation abroad.

Ireland has been forced to defend its low corporate tax rate after the Senate said last week that iPhone and iPad maker Apple paid little or no tax on tens of billions of dollars in profits channeled through Irish subsidiaries and that it had effectively negotiated a special corporate tax rate of less than 2 percent.

Irish ministers and officials have lined up to insist that their tax system is transparent and that other countries were responsible if Apple paid tax at such low rates. Finance Minister Michael Noonan said Ireland would not be the "whipping boy" for the Senate subcommittee.

The government will likely put its response on the record this week, two government sources said, and will tell the committee led by veteran tax sleuth Senator Carl Levin that Ireland is not a tax haven, nor did it cut Apple a special tax deal.

"Undoubtedly there's a risk of reputational damage if we don't defend our corner and set out the facts, so of course that's happening," Ireland's European Affairs Minister Lucinda Creighton told Reuters, referring to the response being drafted.

"I've no doubt there will be a strong response, and we will strongly defend Ireland as a safe, a legally sound and a good place to do business. What you see is what you get, and that is why so many global companies are headquartered in Ireland."

Creighton was speaking from Dublin airport ahead of a four-day trip to Washington and New York where she will meet business leaders and politicians and address the prestigious Columbia University.

While the trade mission was planned long before last week's revelations on Capitol Hill, Creighton said she and her fellow ministers would use every opportunity to put right the "misinformation" heard in the Senate last week.

Ireland has a network in place to quickly spread that message. After it took a financial bailout in late 2010, Dublin set up its Economic Messaging Unit to coordinate communications between all government agencies, departments and embassies.

Irish embassies from Beijing to Buenos Aires were issued rebuttal points last week, a normal practice for major stories, while Ireland's ambassador in Washington held a conference call with government departments and the state agency charged with attracting investment into Ireland to discuss the next steps.

DINNER JOKES IN BRUSSELS

Within weeks of coming to office in 2011, Prime Minister Enda Kenny summoned all the country's ambassadors to Dublin to brief them on how best to restore a reputation he said was in tatters.

The fresh assault will be similar, one diplomatic source said, adding that the key focus would be liaising with a strong network of contacts in the U.S. Administration and on Capitol Hill, where the leaders of Ireland and the United States traditionally meet for lunch to mark St. Patrick's Day.

While Dublin was able to call on ex-President Bill Clinton to tell U.S. companies last year that they would be "nuts" not to invest in Ireland, the task could be trickier this time with the criticism emanating from its normally friendly ally.

"That was a blindside for Ireland Inc. because we always thought we were on the same page as Anglo-American capitalism. We thought it would stick up for us," said Hugo Brady, senior research fellow at the Centre for European Reform in Brussels.

"The PR side of it is really bad for Ireland because Ireland and tax haven are going together in mainstream conversation in Brussels. It hasn't done our image much good when people start making dinner jokes about Apple being an Irish company."

While Ireland will concentrate its energy in the United States to keep attracting jobs from the likes of Apple, Google and Pfizer, it will also need to keep an eye out for any backlash in Europe where its low corporate tax rate of 12.5 percent has drawn criticism in the past.

One influential member of the European Parliament said that while Dublin should be given time to adjust, it should adopt a standardized European Union tax system and ultimately a minimum rate of corporation tax.

"Ireland should take its hands out of other countries' pockets. Ireland's tax system is designed to tax income other people have earned," Sven Giegold told Reuters, underscoring how emotive the issue will be in elections in his native Germany.

"If you want to heat up a room in an election meeting in Germany, you have to talk about tax avoidance. It has become one of the most emotional topics. People are outraged."

(Additional reporting by John O'Donnell in Brussels; Editing by Will Waterman)