Ireland Ranks 31st Out of 73 Secrecy Jurisdictions in the Financial Secrecy Index
The Tax Justice Network has launched its Financial Secrecy Index, which is an amazing reference for anyone interested in tax justice, and considering how Ireland operates as a European Tax Haven that should be many people. The full report for Ireland is here.
Switzerland came in first, and the UK 13th. However, 9 other tax havens are British overseas territories including Jersey, Bermuda and number two on the list the Cayman Islands. As the Guardian notes:
While the UK is given a relatively low secrecy score and comes in at number 13, if the City of London were combined with UK overseas territories such as the Caymans and the dependencies such as Jersey which have greater secrecy, the UK would come out as top of the league overall in the secrecy index.
Interestingly Luxembourg is ranked 3rd, but many MNCs that take advantage of Ireland’s loose regulation avoid tax through intra-group financing activities that use Luxembourg with its own peculiar transfer pricing rules as an intermediary for those loans, as explained here:
Ireland does not view any taxable income as arising as it does not apply transfer pricing rules to non-trading transactions (even after changes applying from 2011). Luxembourg helpfully applies its own transfer pricing rules symmetrically to deem interest as being paid at market rates to Ireland for tax purposes, meaning that only a small amount of taxable profit is recorded in Luxembourg. Meanwhile the loan to subsidiaries in other countries is at market rates meaning that interest deductions will generally be available for local tax purposes. The overall result is that the group will pay significantly less tax worldwide.
You might ask why Ireland is used in planning structures like this in place of classic tax havens such as Bermuda, Cayman Islands and Jersey. The answer is that in these cases many countries would apply withholding tax on interest paid to traditional tax havens. Ireland’s lack of transfer pricing rules combined with the symmetrical transfer pricing rules in countries such as Luxembourg allows tax treaties with these countries to be relied on to avoid withholding tax.
Luxembourg is also called the “Death Star” of of financial secrecy in Europe “because of its leading role, in close political partnership with Switzerland and Austria, in fighting against information-sharing schemes in Europe”.
Some FAQs from the website:
What is the significance of this index?
The index reveals that the traditional stereotype of tax havens is misplaced. The FSI reveals without doubt that the world’s most important providers of financial secrecy are not small, palm-fringed islands as many suppose, but some of the world’s biggest and wealthiest countries.
It also reveals that the illicit financial flows that keep developing nations poor are predominantly enabled by rich OECD member countries and their satellites, which are the main recipients of these illicit flows. The trillion-dollar figure for annual illicit financial flows out of developing countries, above, compares with little over US$100 billion in global foreign aid. So for every dollar of aid provided by OECD countries to developing nations, ten dollars or so flow back, under the table. The implications for global power politics are clearly enormous.
The pattern that the FSI reveals also helps explain why widely heralded international efforts to crack down on tax havens and financial secrecy have been so ineffective. It is OECD countries, which receive these gigantic inflows, which set the rules of the game.
What is the Financial Secrecy Index?
The 2011 Financial Secrecy Index (FSI) focuses on 73 secrecy jurisdictions. These places set up laws and systems which provide legal and financial secrecy to others, elsewhere.
The FSI combines two measurements, one qualitative and one quantitative. The qualitative measure looks at a jurisdiction’s laws and regulations, international treaties, and so on, to assess how secretive it is. The assessment is given in the form of a secrecy score: the higher the score, the more secretive the jurisdiction. The second, quantitative, measurement attaches a weighting to take account of the jurisdiction’s size and overall importance to the global financial markets. In combining the two scores, we mathematically emphasise the secrecy score and de-emphasise the weighting, in order to give secrecy its due importance.
The Financial Secrecy Index website provides our main talking points and some analysis. However, it is backed by a second website, called Mapping Financial Secrecy, which contains a wealth of much more detailed research and data, along with a glossary.
What is Ireland’s Secrecy Score?
The report on Ireland provides a very comprehensive view of how Ireland operates as a secrecy jurisdictions, with plenty of links to additional information. However, according to the report, compared to other jurisdications, Ireland is ‘moderate’ with a score of 44 out of 100. One of the reasons for this is Ireland’s membership of the EU, and why it is attractive to TNCs - from an international legal perspective it doesn’t look like a tax haven, and in terms of avoiding tax this is a very important factor for those companies who want to repatriate profits. The importance of Ireland being a member of the EU while also having very light regulation around transfer pricing is brilliantly explained in Richard Murphy’s Special Report Pot of Gold or Fools Gold, written for the TUC/ICTUNI in response to proposals to introduce 12.5% corporation tax in Northern Ireland.
Ireland’s secrecy score of 44 puts it at the cleaner end of the spectrum.
On the tax side, three main elements stand out. The first is the most often cited as part of the “Celtic Tiger” economy: Ireland’s 12.5 percent corporate tax rate on certain types of corporate income, which has encouraged some classes of corporate activity to relocate to Ireland (alongside other tax rates for other types of activity.) The second is Ireland’s historical near-absence of transfer pricing rules, which have in effect turned Ireland into a prolific source of loopholes in international tax, most notably helping U.S. corporations pay far less than the headline 12.5 percent rate. The third element, essential but overlooked, is Ireland’s membership of the European Union. As well as granting political stability and special access to European markets, membership has helped keep Ireland off tax haven blacklists that would apply to classic tax havens such as the Cayman Islands and Bermuda; many countries that would apply withholding tax on interest paid to traditional tax havensdo not apply those to Ireland because it is falsely classified as “onshore”.
And on the role of the IFSC in the international banking and insurance matrix:
“Ireland hosts over half of the world’s top 50 banks and half of the top 20 insurance companies; in 2008 it hosted about 8,000 funds handling €1.6 trillion of assets; the Irish Stock Exchange hosts about a quarter of international bonds. In 2008 IFSC investment was equivalent to about 11 times Ireland’s GNP; many toxic developments in the ‘subprime’ markets of the U.S. and elsewhere can trace their lineage back to Ireland.”
There are other connections between Ireland, or more specifically, the IFSC and Luxembourg, particular in terms of how they operate as a shadow banking system:
“The IFSC along with Luxembourg are the two main centres for administering hedge and other funds in Europe. These funds are also often quoted on the Irish Stock Exchange in order to comply with regulatory requirements.
The Irish stock exchange (as well as the Luxembourg exchange) are recognised as major world centres for listed international bonds. In 2007, at the start of the financial crisis, the Luxembourg stock exchange accounted for 46% of international bonds, followed by the Irish Stock Exchange with 26%. In contrast the New York Stock Exchange had a share of just over 4.1% (Source: PricewaterhouseCoopers, 2008, p. 2). In 2009 there were 70,287 listed international bonds quoted on five stock markets (Luxembourg Stock Exchange, 2010). The five stock markets include NYSE Euronext, London Stock Exchange and Deutsche Borse. In the year 2009 the Luxembourg Stock Exchange accounted for 43 % of all issues and the Irish Stock Exchange a further 25%. In comparison the next largest in terms of listed bonds, accounted for 18%. This represents a slight fall in market share since 2007.”
So, while Ireland may not rank high in the secrecy jurisdiction list, it is core to how tax is avoided by global corporations, and is also central to the banking system that brought about and is perpetuating the great financial crisis. Maybe instead of #OccupyDameStreet it should be #OccupyIFSC!
Read the full report for Ireland here.
Discussion
We welcome and encourage lively discussion from the public about articles on Irish Left Review. You can leave a comment using the form at the bottom of the page. Please read through the existing comments before posting your own.
Leave a Comment
Sins of the Father
Subscribe by Email
Best of the Web
EU Should Admit Greece is Bankrupt | Christian Rickens
The unvarnished truth - the second Greek Bailout should not have happened.
The mistake isn’t the size, but the construction of the bailout package. It isn’t geared to the requirements of the people of Greece but to the needs of the international financial markets, meaning the banks.
How else can one explain the fact that around a quarter of the package won’t even arrive in Athens but will flow directly to the country’s international creditors? The holders of Greek government bonds are to get some €30 billion as an incentive to convert their old paper into new bonds. The aim is to keep alive the illusion that Greece isn’t bankrupt — after all, the creditors are voluntarily forgiving part of the debt. The financial sector is cleverly manipulating the fear that a Greek bankruptcy would trigger a fatal chain reaction.
That leaves €100 billion. But that too isn’t geared to what Greece needs in order to get back on its feet. It’s linked to an estimate of how much debt the Greek economy can bear without collapsing. International technocrats agree that with debts amounting to 120 percent of gross domestic product, the country can just about go on servicing its debt. That’s the level at which the cow can go on supplying milk without dying of exhaustion. So 120 percent became the goal.
Collaboration, with our European partners | Cunning Hired Knaves
The European project was supposed to be a bulwark against the dangers of fascist ambition, but now it is the instrument used to dismantle European democracy in the interest of the risk adverse looking for a steady income stream from the provision of the social net by those who cite the words and actions of old fascists while doing so.
The post Collaboration, with our European partners by Richard of Cunning Hired Knaves summed up in one sentence. For much better sentences and many more urgent points read the post.
On Sunday there were massive demonstrations throughout the Spanish state, with half a million people on the streets of Madrid and 450,000 in Barcelona, protesting against the labour ‘reform’ planned by the Partido Popular, the right-wing party that most closely represents the interests of the power elites that conserved their position when the transition from dictatorship to democracy was undertaken.
S.P.A.R.K. protest at cuts to lone parents, Dublin 18th February 2012
Many families were cut in the last budget but lone parent families were particularly hit by the Fine Gael/Labour Party government.
The key elements are that single parents can’t take advantage of training such as Community Employment (CE) Schemes and when the youngest child turns 7 years old, the parent is declassed as a lone parent but treated as an ordinary worker even though there are few affordable creche places. There is a bill coming up in March which will copper fasten some of the worst elements of government plans.
There is particular anger directed at the Labour Party because they are associated with women’s rights and a more progressive society.
Please share the link to this video
Exiting the euro | Michael Roberts
Michael Roberts argues that those in Greece who cite the example of Argentina when suggesting that Greece should leave the Euro are not necessarily looking at the whole picture. The situations are not the same, Roberts points out, citing Argentina’s former central bank governor at the time, Mario Blejer and his recent piece in the Financial Times. He also points to research based on the the experience of five recent devaluations of economies in crisis (including that of Argentina) which “shows that they lead to a 10-20% fall in real GDP and take five to ten years to recover to previous real GDP levels. But that is not to say that there is no alternative to “lowering wages, privatising the state sector, reducing taxes for the corporate sector (especially big business) and ‘deregulating’ labour markets i.e. the super-exploitation of the Greek people to raise profitability.”
But the left could also find an alternative policy to exiting the euro where Greece negotiates a full default on its debt to private and foreign bondholders; takes over the banks; and uses the savings from bond and interest repayments (€17-20bn a year) to start state directed investment in jobs, technology and funding small businesses, while staying in the euro to protect the savings of the people from destruction, keeping down inflation and avoiding a rise in foreign debt. The question of exiting the euro then becomes an issue for the Euro leaders to impose (and to be resisted by a campaign within Europe), not as the main policy plank of the left.
Corporate tax avoidance: where are the worst offenders?
This table comes via the Tax Justice Network (and Richard Murphy). It’s from a table produced by U.S. researcher Kimberly Clausing and as TJN notes “demonstrates which countries are working hardest to wage economic warfare on the United States (and, by extension, on other countries,) via the global tax system”.
Solidarity campaign to support the people of Greece
Mikis Theodorakis, famous Greek composer of Zorba’s Dance, and Manolis Glezos, veteran resistance fighter against the Nazi occupation, have issued a call for a European Front to defend the people of Greece and all those facing austerity. We have decided to support this call and work with trade unions, campaigns and parties across Europe to establish a European Solidarity Campaign to defend the people of Greece. We will organise solidarity and raise practical support for the people of Greece; they cannot be made to pay for a crisis for which they are not responsible.
Chris Dillow | Capitalism against freedom
[...]
During the Cold War, opponents of communism routinely, and not entirely wrongly, claimed to be champions of liberty. Freedom for capitalists and freedom of speech and thought go together, it was claimed. “Freedom is indivisible” wrote Bruce Winton Knight in 1952. “Economic freedom is…an indispensable means toward the achievement of political freedom“ wrote Milton Friedman in Capitalism and Freedom. And back in 1944 Friedrich Hayek complained that “We have progressively abandoned that freedom in economic affairs without which personal and political freedom has never existed in the past.”
Today, though, this seems wrong. Many threats to freedom come from capitalists. The story is no longer capitalism and freedom, but capitalism against freedom.
Ian Stewart | The mathematical equation that caused the banks to crash
In The Observer, Sunday 12 February 2012
Anyone who has followed the crisis will understand that the real economy of businesses and commodities is being upstaged by complicated financial instruments known as derivatives. These are not money or goods. They are investments in investments, bets about bets. Derivatives created a booming global economy, but they also led to turbulent markets, the credit crunch, the near collapse of the banking system and the economic slump. And it was the Black-Scholes equation that opened up the world of derivatives.
The equation itself wasn’t the real problem. It was useful, it was precise, and its limitations were clearly stated. It provided an industry-standard method to assess the likely value of a financial derivative. So derivatives could be traded before they matured. The formula was fine if you used it sensibly and abandoned it when market conditions weren’t appropriate. The trouble was its potential for abuse. It allowed derivatives to become commodities that could be traded in their own right. The financial sector called it the Midas Formula and saw it as a recipe for making everything turn to gold. But the markets forgot how the story of King Midas ended.
Greece: a Sisyphean task | Michael Roberts
In a Eurozone that is unwilling to share its surplus with weaker, hardest hit economies there is no other option for those economies but default. Despite the agreement of Greek politicians to shorten their political life and accept the deal all that they have done is simply postpone this eventuality once again. However, even that postponement might be shortened by the Greek elections in April where the smaller leftist parties outside the coalition currently have 40% of the vote. Or so says Michael Roberts:
Whatever the Greek coalition leaders agree to and try to implement, such is the weakness of Greek capitalism, it will not be able to meet its fiscal targets or get its debt down to reasonable levels. Before the end of the year, the Troika will have to report that Greece is not delivering. Then the EU leaders will have to decide whether they ‘let Greece go’ or not. The EU leaders have agreed to more money for Greece (or more accurately its bondholders and banks) in return for draconian cuts in living standards in order to provide more time to try and ‘ring-fence’ other vulnerable Eurozone states like Portugal and Ireland (where they are preparing extra funding). So when Greece goes down, it will not affect the rest (or so the EU leaders hope). Of course, the Greek people may force the issue earlier if they vote in an anti-Troika government in April.
As Greece stares into the abyss, Europe must choose | Maria Margaronis
Do we really want to live in an economic union that must destroy the future of millions in order to just tick along? Maria Margaronis points out that the situation in Greece today says little about Greece and everything about the EU.
The trouble with historical metaphors is that they can obscure the present: what’s really at stake here is not Greece’s identity but Europe’s. All eyes are fixed on Athens, but the way out of the crisis requires a choice about what kind of Europe we want. The one we have now, with its deep structural inequalities and its rigid adherence to a failed economic ideology, protects neither democracy nor human rights. Stiff-necked and punitive, it prefers to eat its children.
Comment by: Pope Epopt
Oct 6th 2011 at 17:10
Another excellent resource from the Tax Justice Network.
I was unaware of the centrality of Luxembourg in this cesspit. The paragraph on Ireland above just about sums up the reasons for the current ‘jobless’ growth in GDP.