Posts By Donagh Brennan

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Tales From Tax Haven Ireland: Running the Numbers Game

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“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 Coffee 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.”

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Tales from Tax Haven Ireland: Irish Property Stuck on Repeat

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“The economy returned to growth in 2011, continued to grow in 2012 and my Department are forecasting continued growth in 2013. In my two Budgets I introduced a number of sector specific initiatives to support this recovery and I am pleased to say that we are starting to see a number of these bearing fruit. Take the commercial property sector for example, recent reports show activity in the first half of this year surpassing transaction in 12 months of 2012. Interestingly, over 50% of the investment is international money coming into the country. We have also just seen the launch of Ireland’s first REIT and I would expect more activity in this area in the years ahead. This is welcome and is supported by Capital Gains Tax incentives in Budget 2012 and the legislation underpinning REITs introduced in Finance Bill 2013.”

-          Minister Michael Noonan’s speech to FSI Annual Lunch July 4th, 2013

I’m sure people think we’re cracked saying Ireland is a tax haven, again and again.

One of the fundamental characteristics of a tax haven is that much of the economy is structured around the managing of hot money from international clients with other elements ignored or neglected. It is essential, if such an environment is to be valuable to their foreign customers, that the vast majority of the money ‘invested’ remains untouched. That is, the quantity of investment going in has to be the same as that going out. However, there is an additional qualification over this movement: the money going out has to be free of any tax obligation – it cannot incur any additional expense once it leaves. This is done in two ways: the first is by nominally taking in money through an opaque structure of sovereign laws backed by OECD credentials and a ‘regulated’ stock market and thereby washing its profits to avoid almost all of its global tax bill. This is complex and requires certain restructuring of the investors’ financials. It also involves buying substantial and expensive advice from suitably qualified tax lawyers. The second, less complex route is to avail of various tax credits and other profit washing mechanisms that are available through property acquisition.

Up to 2008 this washing of profit money via property acquisition occurred largely through Anglo Irish Bank, although the other banks became heavily, and aggressively involved too. Anglo Irish Bank and AIB, and to a lesser extent Bank of Ireland and Irish Nationwide (who were more focused on local rentiers) provided the means of washing profits through the commercial property market in Ireland, the UK and the US. The means of doing this was provided in part by the shadow banking system, mainly based in the UK. Irish regulation had a reputation of not wanting to know too much about the business that international clients were involved in. After all, the business model is based on ensuring that the money that is brought in is able to get back out again in the same condition it entered. They guarantee it will never be taxed while in Ireland. This form of regulation was designed primarily to transform the IFSC into a powerhouse for the management of international financial capital. International investors were also incentivised to invest, either directly or through an SPV, in large Irish properties during the property frenzy where upward only rent reviews and multinational companies as tenants (whether they are highly profitable global software companies or the Irish outlets of large retail chains) provided a state guaranteed return. After all, upward only rent reviews are protected by the constitution! Their usefulness as a financial asset then was assured, as they provided collateral on future rounds of debt creation and profit. And, of course, all of it was tax free and unmonitored.

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Solidarity Books Launch: Sins of the Father 2nd Ed. by Dr Conor McCabe

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Solidarity Books is proud to host the Cork launch of the 2nd Edition of

Sins of the Father: The Decisions that Shaped the Irish Economy

On Thursday 5th December

7:30pm

The event will include a talk from Dr. Conor McCabe, the author of ‘Sins of the Father: The decisions that shaped the Irish economy‘, which analyses the development of the Irish economy throughout the 20th Century right up to the current crisis, without resorting to just pointing fingers at ‘a few morally bankrupt individuals’ in an otherwise sound system.

Sins of the Father: The decisions that shaped the Irish economy This is a new edition of Conor McCabe’s highly regarded economic history, fully updated to include the change of government, the austerity programme, and the liquidation of IBRC/Anglo and the impending exit from the bailout programme.

This new, 2nd edition, of Conor McCabes highly regarded economic history, is fully updated to include the change of government, the austerity programme, and the liquidation of IBRC/Anglo and the impending exit from the bailout programme.

Conor McCabe, who currently teaches at the UCD School of Social Justice, and is a regular contributor to Irish Left Review.

McCabe last visited Cork, and Solidarity Books, in February of this year, to launch “Irish Left Review” journal and to pose the question of ‘Who Benefits from Austerity?’ While popular disgust with TD’s, bankers and other elites’ privileges is rampant, austerity programmes are still justified on the basis that we all must pay for a crisis that we apparently all helped to create. What do we make of this state of affairs?

This will be Conor McCabe’s fourth visit to Solidarity Books in the last two years since the release of his book, and like the previous events, this promises to be an evening of animated discussion.

Entry is free and all are welcome, copies of the book will be for sale at the launch and donations towards the running of the non-profit bookshop are always appreciated.

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Tales of Ireland the Tax Haven: To Hell or to Arthur Cox

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Joanne Richardson is stepping down as head of the American Chamber of Commerce Ireland. To mark the occasion the Irish Independent are providing the usual frothy interview. First all, she says that the level of US investment here is all about the tax regime:

“…but it’s no secret that the favourable tax regime makes it particularly appealing.”

The recent controversies, US Senate Subcommittees and international debates on Ireland as a tax haven are mentioned but brushed aside. Their impact is apparent, however, in the reference to ‘regime’ rather than the 12.5% ‘rate’.

No one believes that one any more. A well-publicised report, published on the 25th of November 2013 by the World Bank and the large accountancy firm PricewaterhouseCoopers, claims Ireland has an effective corporate tax rate very close to the official rate of 12.5%. From the headline of the press release:

“Ireland has an effective corporate tax rate of 12.3% compared to an EU average of 12.9% and 16.1% globally.”

Feargal O’Rourke, Head of Tax, PwC Ireland said:

“The survey further demonstrates that Ireland’s statutory headline rate on profits is broadly similar to the effective rate. For many EU countries, the statutory headline rate is significantly higher than the effective rate.”

Feargal was described by Jesse Drucker in a recent Bloomberg profile erroneously as a ‘local hero’ who made Ireland a ‘tax avoidance hub’, but people might recognise him as the son of Fianna Fail politician Mary O’Rourke and nephew of the late former Minister for Finance, Brian Lenihan.

But, PwC, as a leading accountancy firm in making this claim is running at odds with the advertising made available on the websites of the Irish offices of other prominent accountancy firms.

The most well known in an Irish context is Arthur Cox, who the Irish Independent suggested were the legal brains behind the 2008 Irish bank guarantee. They have been saying that Ireland has a 2.5% effective corporate tax rate in their advertising since at least 2011:

“Intellectual Property: There are numerous advantages for multi-national companies with large Intellectual Property (“IP”) portfolios who locate and manage these portfolios in Ireland. The effective corporation tax rate can be reduced to as low as 2.5% for Irish companies whose trade involves the exploitation of intellectual property. The Irish IP regime is broad and applies to all types of IP. A generous scheme of capital allowances as well as a tax credit for money invested in research and development in Ireland offer significant incentives to companies who locate their activities in Ireland.

A well-known global company recently moved the ownership and exploitation of an IP portfolio worth approximately $7 billion to Ireland.”

(Michael Hennigan suggests that the company in question is Accenture.)

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Fiscal Council Functionaries

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Statements made by economic think tanks and fiscal councils have two distinct styles: incomprehensible gobbledygook, when they are trying to hide inconvenient truths using highly technical language written for the exclusive enjoyment of university professors on the verge of retirement, and press savvy sound bites with a technocratic veneer so that they don’t look out of place when dropped wholesale into an article published somewhere on the business pages in our daily newspapers. The latter ensures that a specific agenda can enter the media at a fictional arm’s length from government. These pronouncements can then be commented upon by Ministers and politicians as if the expert’s opinion is expressed independently of them. Most often, the discrepancy between the opinion of the fiscal council and the government is such that the former will be more extreme in what it recommends. This provides the minister with room to offer a more ‘political’ solution; one which suggests that they are not monsters, after all.

Irish banks are on the verge of a Euro wide stress test. The banks, as we know, despite years of unprecedented support are still fucked (I can’t think of a nicer way of putting it). They were given everything and they are still hollowed out.

In 2008, at the height of the crisis the state promised to pay all investors, even the short term money markets via the shadow banking system, who had provided the banks with most of their wholesale capital.

Just to note the shadow banking system is unregulated because if an alternative fund makes a loss on an investment it is expected that the investor will eat that loss (it’s also expected that they would have hedged against it and probably made a profit from selling on the insurance taken out to cover any potential loss etc ). Because of this they are outside the money system and, unlike normal banks, they do not get support from a central bank to balance their books at the end of the day.

The bad loans (debt) that Irish retail banks had accumulated through failed commercial property speculation was taken off them. The book losses from the haircuts on the bad debt was repaid in full through recapitalisation and the purchase of the loans was paid for through direct government funding and the selling of state-backed bonds.

All these things were justified one the basis that it we had to rebuild ‘a well-functioning credit system’.

Irish bank were left, however, with what at the time were performing loans – house mortgages.

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Dublin Launch of the 2nd Edition of Conor McCabe’s Sins of the Father, Weds 13th Nov, @6pm Liberty Hall

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The Dublin Launch of the 
2nd edition of 
Conor McCabe’s Sins of the Father: Tracing the Decisions That Shaped the Irish Economy
is on:
Wednesday the 13th of November
at 6pm,
in Liberty Hall.
With guest Vincent Browne
 
The event is hosted by the Young Worker Network
The book is currently available as an e-book. Copies should be in shops shortly.

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Budget 2014 Changes in Irish Corporation Tax Regime is No Change At All

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I have been looking for detail on the proposed changed in the corporate tax regime announced by Michael Noonan in the budget. So far I can’t find anything, but this is the clearest so far:

“Under current Irish tax law, Irish registered companies that are managed and controlled from other jurisdictions, are not tax resident here. Such companies, resident here but controlled and managed from offshore locations such as Bermuda and the Cayman Islands, form part of the international tax structures of major multinationals such as Google and Microsoft. Although they may pay no corporation tax, they are not “stateless” in terms of tax residency and are outside the scope of the measures proposed by Mr Noonan. A spokesman for Mr Noonan’s department confirmed this was the case.”

Both Google and Microsoft, and of course Apple use secretarial services provided in the offices of firms of Irish solicitors to create subsidiaries that are ‘resident’ or incorporated in Ireland, but are not ‘tax resident’ here. This is because these subsidiaries, the Irish legal flim-flam goes, are ‘managed and controlled’ in the offices of firms of solicitors in Bermuda or the British Virgin Islands. These subsidiaries, such as Google Ireland Holdings Ltd (Bermuda) are nothing more than a post box address in a Bermuda high street, and the only managing and controlling that goes on is through the secretarial services (opening letters) provided by a busy but small staffed solicitor’s office.

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Whatever Happened to Workers’ Playtime?

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Jennifer O'Connell has a lifestyle feature in the Irish Times today that takes on David Graeber's essay in Strike! Magazine about bullshit jobs with a 'sure wasn't ever thus?' type of argument. But one of the ironies of it is that while she largely agrees with Graeber she can only do so by avoiding an important element of his central premise – that it's about capitalism.

In his essay Graeber says:

“In the year 1930, John Maynard Keynes predicted that, by century’s end, technology would have advanced sufficiently that countries like Great Britain or the United States would have achieved a 15-hour work week. There’s every reason to believe he was right. In technological terms, we are quite capable of this. And yet it didn’t happen. Instead, technology has been marshalled, if anything, to figure out ways to make us all work more.”

What this doesn't address, however, is that Keynes argument was originally a lecture which he presented to mollify those of his students in Cambridge in the 1930s who were being attracted to Marxism and Communism.  Keynes, later Lord Keynes, hated Marxism, despised the USSR and was happy to declare that when it came down to it he would always side with his class, the capitalists against workers. His arguments about providing full employment and increasing wages were deployed as the best way to maintaining equilibrium within capitalism and not about improving the living standards of the majority, per se. Maintaining this equilibrium, however, depended on the ‘euthanasia of the rentier’, the suppression of reckless financial speculation and the promotion of productive investment. In his lecture, which Graeber and O'Connell refer to without acknowledging this context, he was telling his students, sure capitalism is doing badly now and is making things difficult for everyone, but within their lifetime working hours would be reduced and capitalism would provide the kind of conditions that are envisioned within a worker's republic. Capitalism works, stick with it.

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Interview: Mark Blyth’s The History of a Dangerous Idea

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Mark Blyth’s The History of a Dangerous Idea is a great book and slays many myths including a couple about how Ireland is the best example of a country obtaining growth through ‘fiscal consolidation’ aka austerity in the late 80s and early 90s as well as more recently being considered as a ‘poster child’ for austerity in Europe, a model for Greece etc.

But the sharpness of the book, its informativeness and the conciseness of the arguments are no match for the bite of Blyth’s delivery of them in this interview on The Business.

George Lee usefully gets some excellent sharp responses to recent events, about Ireland being a tax haven, the Anglo Tapes and the recent ESRI report that says the government should keep on with austerity. Highly recommended.

Click the link below to listen online: 

RTE’s The Business – Extended Interview with Mark Blyth

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More WTF than Why: How to Frame the Wrong Question about the 2008 Bank Guarantee

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Fintan O'Toole has some interesting questions that he suggests any future banking inquiry should tackle, but won't. The questions are worth considering because they illustrate a systemic trend regarding the class nature of Irish politics and the underlying cause of our regular banking scandals. I provide some information but not answers to these questions here. However, one of the final questions suggests that despite providing an indication of a pattern of behaviour which, if examined properly would bring us closer to a fuller understanding of how Irish society really operates, he actually hasn't a clue.

“Why were there no prosecutions or disbarment of directors after the Dirt inquiry found in 2001 that the banks had engaged in a massive fraud on the State?”

Well, Irish Revenue knew since 1976 that offshore tax avoidance by Irish residents was occurring. In 1985 the Irish government created DIRT legislation to tax deposits, but guessed at the time that 25% of those with deposits in Ireland were using fake addresses to avail of Irish banks non-residents account facilities – tax dodging in short. Note, that was a guess, they had no idea how big it was as officials assured banks that they didn't want to frighten away genuine foreign depositors who were using Ireland to avoid tax in their own country. They did nothing until 1998 when the story broke after an Irish banker got into a professional spat with another banker and somehow his claim, made in 1991 that AIB was liable for £100m in unpaid DIRT tax got into the papers. Incidentally, in his book which he published after the reports and the DIRT scandal broke he admitted that he pulled the £100m figure 'out of his ass'. AIB finally settled with Revenue for £98m. There were several tax amnesties in the 80s and 90s, yet often the money held in these account was not declared, as an inquiry into the DIRT scandal revealed.

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REITs for the (Property) Czars

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Recently the rating agency Fitch highlighted the massive connection between shadow banking and mortgage REITs, a property investment vehicle that has increased hugely on the back of the collapse in the US property market. While REITs have been around for a while (first legislated for in 1960 by President Eisenhower ) they didn't make much of an impact, as other forms of investment through asset speculation dominated the stock market.

With a financial crisis on the back of a bursting property bubble however, REITs finally came into its own as it seemed that the financial collapse deflated values in property sufficiently to make them a worthwhile investment given that prices in certain markets (mostly major capital cities) would likely rise again. As one of the requirements of REIT is to disperse up to 80% of its profits to shareholders, it is considered to be 'safe' from a regulatory point of view.

However, the Fitch report was written to highlight the considerable risk that mortgage REITs might pose, as they are being financed through the shadow banking system.

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NAMA: Speculating on CUI BONO

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One of the main criticisms of NAMA, and there are many, is that rather than dealing in the most effective way, both in terms of cost and social benefit, with the legacy of bad debt created by frenzied speculators during a credit bubble, it is instead designed to soften the losses for those who benefited substantially from that socially manufactured glut of liquidity and to reignite the property market speculation that got us where we are today.

Proving that or even making such a claim is not straight-forward of course, due to the opacity of the institution itself and the length of time that it is supposed to do its work, for the benefit, we are told, of those who live and work in Ireland.

However, I couldn't resist the temptation to provide a rough sketch of what appears to be going on at the moment. The following is a bit scrappy, so I apologise in advance if its difficult to follow my point, but these posts are often an attempt to work things out with a view to improving on them at a later date.

Of the original NAMA portfolio fifty-four percent are in Ireland, around 34 percent in mainland Britain and 13% in the rest of the world, which oddly includes Northern Ireland.

Around eighty percent of NAMA's sales so far have been in Britain.

This suggests that much of the UK portfolio has been sold off.

NAMA is viewed by international investors as having been a very good idea,” U.S. billionaire Wilbur Ross, whose WL Ross & Co. owns 9 percent of Bank of Ireland Plc, said in an e-mail. The strategy of focusing on U.K. sales first “provided near- term proceeds from a relatively stronger market while not flooding the Irish market before the sovereign had stabilized,” he said.”

So NAMA is now focusing on selling it's Irish portfolio as the market 'has found its floor'.

Floored

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