[Ecommerce] soft. patents in europe

[Pedro de Paranagua Moniz]

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*24 Feb. 2005
The Irish Tax Haven
And Ireland's Dependence Upon the Likes of Microsoft *

Given his obvious bias, Irishman Charlie McCreevy should never have been
entrusted with the control over the process on the software patent
directive. Unfortunately, in his role as recently appointed EU
Commissioner for the Internal Market, he is the most powerful man in the
process. That man is a Microsoft vassal. Bill Gates' wish is McCreevy's
command. We are not talking about an impartial politician but about
someone who even vowed in a speech in the European Parliament that he
would vigorously represent certain interests. If he is not stopped, then
he will abuse the power of his office to wreak havoc to 24 EU member
countries only to do what he thinks is good for one country -- his own.

Those accusations may sound quite strong but they are based upon facts.
Let's look at the way things work in Ireland for those U.S. software
companies like Microsoft.

*Europe's Poor Man Became Europe's Richest*

About 20 years ago, most statistics showed that Ireland was the poorest
country in democratic Europe. The beauty of the Emerald Island is beyond
all doubt but for such reasons as its location and the climate, there is
not much tourism.

At that time, two decades ago, Ireland had no such thing as a
significant export industry. Over the span of several generations, a
major "brain drain" had occurred. Some of Ireland's most talented people
sought a better future in the USA or the UK. Some famous Americans from
Irish descent are Henry Ford, Judy Garland, John F. Kennedy, and Bruce
Springsteen.

Today's statistics show that the Irish per-capita income is above the
average German income! Ireland has enriched itself at the expense of the
rest of the EU (to which Ireland acceded in 1973). On the bottom line,
we as the tax-payers and consumers in other EU countries are the ones
who pay the Bill for the heaven of Gates.

Now the Irish game plan is to use software patents to defend and further
extend that newly-found wealth. In order to do so, Ireland seized
control over the DG (directorate general) MARKT (Internal Market), which
is the DG in charge of the software patent directive. Also, the Irish
abused their EU presidency in the first half of 2004 in a way that no
other country has ever made abuse of an EU presidency term. We'll get to
that in a moment.

*USA and Ireland Win, Europe Loses*

When the computer industry (both hardware and software) took off,
Ireland positioned itself as the preferred location for the European
business of such U.S. companies as Microsoft. From the perspective of a
U.S. company in our industry, it's highly attractive to operate a
business in a country where you only have to pay a tax rate of about 10%
(!) if you present a business plan according to which you create some
employment in Ireland (typically in Dublin or Shannon).

Because of historic ties, the USA was quick to allow its companies to
take those low-tax profits home from Ireland without any further
taxation. Usually, if you have profits in one country and reside in
another, double taxation agreements will apply, and typically you would
end up paying a total that is closer to the higher of the two tax rates.
The USA did this to help Ireland but also to subsidize its own IT
industry at the expense of its European competitors. Higher after-tax
profitability is a competitive advantage.

It's a great deal for Ireland which only has about 1% of the EU's
population. Even a relatively low tax rate on the total European
business of companies like Microsoft is a huge amount compared to what
they'd otherwise get.

However, this approach wouldn't work if we didn't have the EU's internal
market. Within the EU, there are no customs duties on shipments of
goods. If there were, then the tax benefit would quickly be lost.
Usually the EU would impose import duties on shipments from an adjacent
country that has rock-bottom tax rates, but within the EU, that is just
not possible. There would be other ways to address this issue within the
EU but so far, the governments of all other EU member states are neither
willing nor able to tackle this problem although it reaches ever more
massive proportions.

*Ireland Is the World' Largest Software Exporter
While the EU Has a Trade Deficit on Software*

An OECD analysis conducted a few years ago arrived at the result that
Ireland exports software worth a double-billion Euro amount per year.
Well over 90% of that export activity is due to the presence of
subsidiaries of large U.S. corporations.

Let's face it: Ireland is in a completely different situation from the
entire rest of Europe. As a whole, the EU has a huge trade deficit on
software versus the USA. In other words, a lot of money is sucked out of
the European economy (mostly via Ireland) because of excessively high
prices that Europe's businesses, consumers and public administrations
have to pay for software products that hold monopolies in certain fields.

*Why Microsoft Pays Virtually No Taxes in a Country Like the UK*

It's an unspeakable injustice that, for an example, every British
sotware company is forced to pay the rather high British corporation
taxes while Microsoft runs a billion-pound business in the UK on a
tax-free basis. At least the British tax authority -- and that's the
case in every other EU country except Ireland -- receives almost nothing
from Microsoft.

This is how that game is played:
- If you buy a copy of Windows in a UK store, you can be sure that it
has been supplied out of Ireland (NOT by Microsoft UK).
- So the revenues and consequently the profits are generated in Ireland,
and that's where the tax rate for this type of export business is low.
- The local subsidiary of Microsoft in the UK simply functions, in legal
terms, as a "marketing agency". It only has the task to provide certain
"services" to its parent company (marketing, sales support, sales
generation). That parent company has to pay something for those services
but obviously makes sure that it purchases those services at a price at
which there is no serious profit in the high-tax country. So basically
they just reimburse the costs of the UK (or other) subsidiary.

The net effect is this:
- Microsoft makes use of the infrastructure of a large market such as
the one in the UK but basically just generates income tax for the UK (no
corporation taxes on its profits).
- If Microsoft had to pay usual UK tax rates on its UK profits, we'd be
talking about a huge amount (many hundreds of millions of pounds, if not
more) per year.
- So all of us (who have to pay taxes where we live and where we make
our money, not in Ireland) have to contribute to the immense profits of
Microsoft and other large IT vendors.
- For tiny Ireland with only 1% of the EU's population, it's just one
great deal.

*Irish Economy is Hugely Dependent Upon the Likes of Microsoft*

Statistics show that about 50% of all corporation taxes paid in Ireland
are paid by the Irish subsidiaries of multinationals that use Ireland as
their gateway to the EU. There are estimates that even go way beyond 50%.

Microsoft alone generated about 10% of the total Irish corporation tax
revenue a few years ago! Even in its home country, Microsoft is light
years away from that level.

*McCreevy Deserves No Trust*

McCreevy, prior to becoming commissioner, was Irish minister of finance
(from 1997 to 2004) and thus Microsoft's best buddy over here.

McCreevy is known to have pursued a policy to the benefit of those
multinationals while he was minister of finance.

McCreevy was part of the Irish government that had the presidency of the
EU during the first half of 2004. Even the official Web site (!) of the
Irish EU presidency listed Microsoft as a "sponsor" -- talk about Europe
becoming a banana republic.

It was McCreevy's Irish government that abused its EU presidency (which
mostly means presidency of the EU Council) in order to push a
legislative proposal through the Council on 18 May 2004, the day of the
"political agreement" that still has not led to a formal decision
because it was built on lies as to the consequences of such a legislation.

Just this month, McCreevy met with Bill Gates in Brussels. The only
directive for which McCreevy's DG is responsible and which plays any
significant role to Microsoft is the software patent directive.

You can see a picture of that meeting of McCreevy and Gates, and read
some more about how Ireland acted during its EU presidency, if you click
on this link:
http://www.ffii.org/~zoobab/monopolsoft.com/
<http://www.ffii.org/%7Ezoobab/monopolsoft.com/>

McCreevy recently tried to lure the European Parliament into a trap. He
asked the EP's Legal Affairs Committee to put off a decision on
requesting a restart of the process until McCreevy would visit them in
early February. However, in the meantime McCreevy pushed the EU Council
to adopt its Common Position on 24 January (which was prevented, once
again, by Poland). That would have resulted in an announcement of the
Common Position in the European Parliament on the 26th or 27th of
January (during a so-called "mini-plenary" in Brussels), and that
announcement would have closed the procedural door to a restart. It was
a devious and deceitful plan, and only the courage of Poland thwarted
it. It shows what kind of things McCreevy tries in order to get software
patents legalized (or to at least prevent a directive that clearly
abolishes software patents).

*If Any European Country Benefits From Software Patents, It's Ireland*

Software patents are so negative for innovation and the economy that
Europe as a whole would clearly suffer from them. However, if there is
any country that could capitalize on them, then that's Ireland because
it benefits from Microsoft's and other companies' monopolies. What
Ireland would like to do is to crush any or all competition to Microsoft
et al. (be it open source or smaller companies) just to make sure that
Microsoft will for a long time continue to generate huge profits of
which Ireland gets its share.

Ireland also tries to position itself now as a perfect location for
"patent trolls" that produce no actual products but use patent
portfolios to litigate against honest people in the rest of Europe.

*McCreevy Must Relinquish His Control Over the Software Patent Directive*

There can only be one solution: "McGreedy" must, one way or the other,
relinquish his control over the software patent directive. That
important legislative project must be transferred upon an EU
commissioner who has no vested interest in software patents. Since 24
out of 25 EU member states are net importers of software, it makes no
sense to let the only net exporter of software in the EU define our
policy in that area. Ireland's economic model is parasitic, and that's
bad enough, but we'd be crazy to give them even more than we already have.

It is absolutely no coincidence whatsoever that McCreevy was assigned to
the internal market directorate. Every EU member state gets to provide
one commissioner, but each commissioner is then assigned to a certain
area of responsibility. There is a negotiation about that. According to
media reports, Italy insisted on getting a key role in legal policy (to
protect Italian prime minister and media mogul Berlusconi from
prosecution), and Ireland did everything in its power (and apparently
enough to succeed for now) to gain control over the directorate general
that manages the software patent directive.

The power of an EU commissioner in a legislative process is tremendous.
Whenever he thinks the process is going in a direction that he considers
undesirable, he can kill the process. As long as Ireland has that kind
of power in its hands, we have to realistically assume that an
unambiguous abolition of software patents in the EU will be extremely
difficult to do, and may not be feasible at all. That is not democratic
but it is a fact.

It's time to take action. There are various other DGs in the EU
Commission that could better handle the software patent directive (such
as science & research; information society; competitive policy...).


http://www.nosoftwarepatents.com/phpBB2/viewtopic.php?t=397, visited on
25.02.2005