Tales From Tax Haven Ireland: Running the Numbers Game

, , Comment closed

8 Flares Twitter 0 Facebook 8 8 Flares ×
Print pagePDF pageEmail page

“The extremely low effective rate figures that have been quoted over the past week and attributed to Ireland are based on a flawed premise. The figures are estimated by dividing the amount of Irish tax paid by a total profit figure that includes substantial profits made by companies that are not tax resident in Ireland. They are running together the profits earned by group companies in Ireland and in other jurisdictions and incorrectly suggesting that Irish tax does or should apply to both.”

So, Michael Noonan rejects the recent findings of Jim Stewart of Trinity College, Dublin that US companies in Ireland have an effective corporate tax rate of 2.2%. In this he is following the insistence of Feargal O’Rourke of PriceWaterHouse Coopers who claims that Stewart erroneously includes companies that are incorporated in Ireland but do not operate here.

These are companies, like, for example, Google Ireland Holdings, Bermuda, which is ‘tax resident’ in zero tax jurisdiction Bermuda but is in effect a letter box company with a registered address in Sir John Rogerson’s Quay, that is, the office of solicitors Matheson Ormsby Prentice.

The basis of O’Rourke and Noonan’s (and the government’s) objection to Stewart’s finding is that the TCD economist uses US Bureau of Economic Analysis (BEA) data.

As Seamus Coffey puts it in a response to the 2.2% rate claim, BEA methodology highlights

“…that for companies, US residency rules are based on paperwork rather than activity.  Under US law, the tax-residence of a company is the country where it is incorporated.  All companies registered in Ireland are thus considered “Irish-based” under US law.”

Or according to Keith Walsh, top economist at Office of the Irish Revenue Commissioners in a recent article on whether or not Ireland is a tax haven:

“Recent criticism of the Irish corporation tax regime has focused the apparently low rates of tax paid by mostly US multinationals in Ireland. As noted above, this issue is often confused by the use of data such as the BEA that combines profits of resident and non-resident companies to suggest low effective tax rates on activity in Ireland. Under Irish law, companies’ residency is determined by the location of where they are managed and controlled. Ireland does not impose tax on companies that are tax resident in other jurisdictions.”

So, the problem with BEA data, from the government’s perspective, is that it doesn’t take into account the rules of non-residence of companies for tax purposes established in the 1999 Finance Act.

However, it is not the BEA who are lumping all US subsidiary companies whether they operate here or not as being tax resident in Ireland. It is US companies themselves who are doing this.  The following is from Google’s Form 10-K submission to the United States Securities and Exchange Commission:

“We and our subsidiaries are routinely examined by various taxing authorities. Although we file U.S. federal, U.S. state, and foreign tax returns, our two major tax jurisdictions are the U.S. and Ireland.”

The government’s objection to BEA data being used to calculate effective tax rates it at odds with the government’s endorsement of the data when it comes to declaring levels of US investment.

Every year the US Chamber of Commerce, Ireland issues a report called The Irish-US Economic Relationship for whichever the year is, and over the last two years Richard Bruton has launched it.

At the 2012 launch he said:

“Deepening and developing our economic ties with the United States will be crucial for our economic recovery and forms a major part of the Government’s plans for jobs and growth. The excellent report published today by the American Chamber shows that our performance continues to improve, with a 9% increase in US investment here in 2011. Challenges remain for Irish companies doing business in the US, but it is important to recognise that such companies employ over 120,000 people there. Measures to assist businesses on both sides of the equation – US companies seeking to invest in Ireland, and Irish companies seeking to expand their operations abroad – are being implemented as part of the Action Plan for Jobs, and I am determined to ensure that we can build on these achievements to create the jobs we need.”

Which is almost word for word what he said in 2013.

In both these ‘excellent reports’ the data used is from the BEA:

“On a historic cost basis, the stock of US investment in Ireland soared by nearly 20% in 2011, rising to $188.3 billion (see exhibit 1.4). Behind this surge: more US investment in Ireland’s so-called “information” sector, as defined and categorised by the US Bureau of Economic Analysis (BEA). According to data from the BEA, US investment stock in Ireland’s “information” sector (including investment in software, data processing, telecommunications, other services) surged by nearly 30% in 2011, rising to $19.5 billion from $15.2 billion the year before. The sizeable jump reflects the underlying confidence in Ireland among many leading US technology leaders, with Ireland trailing only the United Kingdom when it comes to attracting the most “information-related” capital stock among European nations (see exhibit 1.5). As the exhibit highlights, there is Ireland and the United Kingdom, and then the rest of Europe.”

So the government is going to produce another report which will attempt to counter the evidence provided by Dr. Jim Stewart, who has been studying Irish export statistics since the early 80s and has based his information on BEA data. I wonder if the report will also be used to replace the BEA data they refer to when exaggerating the growth in US investment. Yes, I doubt it too.

Thanks to Michael Hennigan of finfacts for some of this.