Financialisation

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Yes, Say it Again: Ireland IS a Tax Haven and it’s Worked Hard to Be That Way

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So the US Permanent Subcommittee on Investigations has declared that Ireland is a tax haven and Apple executives giving testimony to the committee have said that the Irish government gave them a special 2% rate. Rate in this context is irrelevant however, as the mechanism ensures that what Apple declares as taxable income is completely up to them. As many reports have suggested, Apple could pay as little as 0.05% on income earned and passed through Ireland, and the revenue appears to be sales tax on Apple products bought in Ireland. In addition they have also said that their Irish companies are not registered for tax anywhere, so that none of the $30 bn global income earned in the last number of years was taxed.The Irish government denies that it has provided special tax treatment to Apple, and that it is not a tax haven. This is the surest sign that it is one, according to Richard Murphy of Tax Research UK.

If you haven't already you could do worse than get one of the remaining handful of copies of the first issue of Irish Left Review, which includes a good interview with Ricard Murphy about the Irish system. There is also a long article about Ireland and corporation tax which deals this in a fair amount of detail.

However, with all the coverage I am drawn back to a post by Conor McCabe from July 2010 written around the time he was working on the chapter on the cattle industry in Sins of the Father. (Good news, the 2nd edition of Sins of the Father, with a new chapter on more recent developments will be published towards the end of 2013).

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Ireland is Hardwired into the Tax Evasion Network

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As reported today, “[Eamon Gilmore] did not believe that multinationals having headquarter operations in Ireland that used offshore locations as part of their tax avoidance strategies, put the country in a difficult position when it came to the subject of tax havens”.

The Tax Justice Network has made a point in recent years of replacing the term ‘offshore’ and tax haven with ‘secrecy jurisdictions’. This is their reason for creating the Financial Secrecy Index which lists Ireland at 31.

“The Tax Justice Network has estimated, conservatively, that about $250 billion is lost in taxes each year by governments worldwide, solely as a result of wealthy individuals holding their assets offshore. The revenue losses from corporate tax avoidance are greater. It’s not just developing countries that suffer: European countries like Greece, Italy and Portugal have been brought to their knees by decades of secrecy and tax evasion.

These staggering sums are encouraged and enabled by a common element: secrecy. Secrecy jurisdictions, a term we often prefer instead of the more widely used term tax havens, compete to attract illicit financial flows of all kinds, with secrecy as one of the most important lures. A global industry has developed where banks, law practices and accounting firms provide secretive offshore structures to their tax dodging clients. Secrecy is a central feature of global financial markets – but international financial institutions, economists and many others don’t confront it seriously”.

Irish politicians don’t take it seriously either, for the obvious reason that it remains good business for the Irish executives who operate the subsidiaries of foreign banks here, and who work in the law practices and accounting firms that advise large multinational firms on the international tax strategy. For a relatively small economy Ireland has a disproportionately large number of experts on international taxation.

So it’s unlikely, when talking about the need to attract foreign direct investment, or saying that that the Irish economy has to become more competitive to boost the export sector as a means of reducing the deficit that Eamon Gilmore or Enda Kenny would say that as a means of doing that we have to build on our excellent relationship with our largest trading partner: Bermuda, the off-shore the tax haven.

Taken from Mary Everett, The statistical implications of multinational companies’ Corporate Structures, Quarterly Bulletin, Central Bank of Ireland, April 2012

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Padriac White and the Establishment of the IFSC

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The following extract is taken from The Making of the Celtic Tiger: The Inside Story of Ireland’s Boom Economy. Dublin. Mercier Press. (2000). It is Padraic White’s own account of the development of the Irish Financial Services Centre.

In the middle of 1973, the IDA launched international services as its latest product. At the time, this category included both technical consultancy services and computer services. However, within the IDA’s own research unit, work continued to identify and analyse other service products, including those n the financial-services area. One of the economists engaged in this task was Ken O’Brien, who later, as founder of Finance magazine, would provide specialist coverage of the Dublin financial centre. Our New York office befriended a Wall Street lawyer, Bob Slater, who was familiar with the then-exotic world of offshore banking – the reasons why banks set up in specialist offshore centres, the kind of financial activities undertaken there and the nature and number of jobs created in this developing sector.

As manager of the planning unit, I agreed to take on Bob Slater, both as a financial consultant on financial services to IDA and to produce a study of offshore banking systems. His report examined the success of Bermuda in creating jobs in financial services, and he was satisfied that Ireland could emulate its achievement. And so in 1978 – innocently, in hindsight – we set out to promote international financial services to the world, and did so on a pilot basis to test-market the reaction. The IDA executives embarked on their selling mission, armed with the expert conclusions of the Wall Street expert.

During the year the IDA team soon landed some big fish in the form of two US banks that had developed specific job-creating proposals. However, the agreement of the Central Bank was first needed. Michael Killeen* considered the proposals sufficiently important for himself to go with Jerry Kelly, who was negotiating the projects, and myself to make the case for Central Bank authorisation. The reaction was not encouraging and we left the Dame Street offices feeling rather dejected. We could not give the required assurances or promises of authorisations to our foreign bank clients. The projects died and we ceased to do any more financial-services promotion. Subsequently, it emerged the bank no stomach for the projects and would not approve them. However, the IDA could never get a clear reason for this. The most authoritative word which came back indirectly was that the Central Bank believed the offshore financial projects ‘smacked of a banana republic.’ (pp.323-4.)

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Progressive Film Club: Urban Finance and Suburban Sustainability, Sat 23rd of Feb, The New Theatre, Temple Bar

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The following are the upcoming showings this saturday, but check out the full program for February, March and April here.

Saturday 23rd February: Urban Finance and Suburban Sustainability

The New Theatre • 43 East Essex St Temple Bar • Dublin 2

2pm: The End of Suburbia: Oil Depletion and the Collapse of the American Dream (2004)
Since the Second World War, Americans have invested much of their new-found wealth in suburbia. It promised a sense of space, affordability, family life, and “upward mobility.”
As the suburban population exploded in these years, the suburban way of life become embedded in the American consciousness: it became part of the American Dream. But as we entered the 21st century, serious questions began to emerge about the sustainability of this way of life.

  • Directed by Gregory Greene.

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Prof. Terrence McDonough on the Irish Promissory Note Deal – Galway 12 Feb 2013

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Audio recording of Prof. Terrence McDonough’s talk in Galway tonight, “What the !$%! just Happened? A Discussion on the Recent Debt Deal.” Thanks to Vicky Donnelly of Galway Debt Justice for organizing the event.

Main Talk

Mcdonough12-02-13-talk by Conormccabe on Mixcloud

Q&A

McdonoughQ&A-12-02-13 by Conormccabe on Mixcloud

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A Rotten Deal

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The Anglo: Not Our Debt campaign regards the promissory note deal announced last week as a rotten one, and we do so for three main reasons.

First, this was not our debt in the first place. Anglo Irish Bank (some of whose executives are under criminal investigation) and Irish Nationwide Building Society ran up these debts on the basis of loans made to them by speculative investors looking to make a fast buck. Those investors gambled and they should have lost, rather than have the state guarantee their gambles and force people living in Ireland to repay debts that they had no part in creating and from which they derived no benefit. The deal legitimises an illegitimate debt.

Second, the stretching out of the repayment period (which may or may not reduce the real value of the debt – government projections on ‘savings’ are already being contested) places the burden of this debt on future generations: our children and grandchildren will pick up the tab for the gambling debts of the bondholders. Minister for Finance Michael Noonan uses the analogy of a long-term mortgage, the cost of which will be eroded by inflation, but in reality we are paying a massive mortgage for someone else’s house and will have nothing to show for it in 40 years’ time save for the scars left by successive cuts. Meanwhile, billions of euros will be continue to be taken from public spending annually to cover the interest repayments on the sovereign bonds that have replaced the promissory notes. Children will pay now through cuts to their education, community and other public services, as well as the bombshell payments of principal they will face in 25-40 years’ time. How can this be considered just or ethical?

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Selections from Finance Dublin Magazine, 1988

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These scanned pages are intended as an aid to research into the world of finance in Ireland. I’m going to try to post as much of the primary and secondary source material I come across as I can. The purpose here is purely educational.

Some quotes, just to give a sense of the articles below.

First, from Ray Douglas, group general manager, Treasury, of Allied Irish Banks, talking about Dublin’s biggest dealing room (January 1988, pp.37-38):

 

The commissioning of our new 80-position dealing room is Bankcentre is only the latest step in a long association between Allied Irish Bank and the global financial markets. In the mid-1970s AIB identified the emerging global financial markets as a major business opportunity for the bank… Our objective is to make AIB a significant niche player in the markets, trading on our own account, providing liquidity to the markets and acting as market maker in some specific areas…
During the 1980s the emergence of the new global financial markets in securities and in off-balance sheet instruments such as SWAPS* and FRAs** has provided a further range of opportunities for AIB.

* SWAP
**Forward Rate Agreement

Ireland had been hot-wired into the world of swaps, derivatives and other off-balance sheet activities for at least twenty years before the crash of 2008. This was no ‘bad apple’ scenario.

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Reflections After Promnight

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Watching the “deal” on Anglo being done over the past few days has provoked some pretty awful feelings in me and I imagine I’m not alone in this – certainly if my facebook news feed is anything to go by. The copper-fastening of the promissory note debt by converting it into a sovereign bond represents a significant move in the wrong direction. The government has actively maneuvered to limit even further any possibility of default on that debt.

In terms of the realpolitik of this, it makes a certain degree of sense. By transforming the promissory notes into government bonds the issues has been kicked to touch – no doubt the possibility of defaulting on this debt will be completely removed from the political agenda. In other words, this technical operation will depoliticize the Anglo debt and therefore consign to history one of the most contentious elements of the legacy of the ‘financial-real estate complex’.

Moreover, the government spin has been quite effective. They have managed to sell the line that this will cost us less because it is stretched out over a longer period and that this ‘bookends’ the Anglo chapter, thus providing a sense of resolution or closure. The support of the media for the government position, even for those of us who would not be enamored with the media at the best of times, was striking. On Wednesday evening it seemed the media were struggling to find their take on the whole issue. By lunchtime on Thursday Sean O’Rourke on RTE’s lunch time news was cheerily declaring a “breakthrough in Ireland’s attempt to lift the debt burden”. Today’s Irish Times (February 8th) features an entire promissory note section, most of which reads like a press release from the Department of Finance.

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The New Dependency Theory

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The crisis that began in late 2007, and which seems to be continuing for the foreseeable future, has highlighted the role of global wholesale financial markets in creating what may be described as new dependency relationships. Old dependency theory was a structural-Marxist theory. It hypothesised that the world capitalist economy is structurally arranged to facilitate massive transfers of capital from developing countries to the developed world. The new dependency theory agrees that net outflows of capital from developing countries have been continuing unabated for the past three decades. But—and this is a key difference between new and old dependency theory—these illicit flows are a problem not only for developing countries but also for developed ones.

This is so for two reasons. First, the net flow of capital is not necessarily transferred to or invested in the developed world. Rather, the transfer of financial resources from developing countries joins a large pool of capital registered in offshore locations. Second, there is evidence that developed countries are subject to net external outflow of capital as well. In contrast to old dependency theory, the new theory suggests that capital transfers do not necessarily operate on a regional or intra-national basis; rather, wholesale global financial markets have emerged as gigantic re-distributive machines that play a key role in the continuing and growing gap between rich and poor world-wide.

In developed countries, the main detrimental impacts of illicit flows are growing income inequalities and a weakening and narrowing of the tax base, as effective (as opposed to nominal) tax rates by corporations and rich individuals decreases continuously. For developing countries these problems are compounded further: they include poor governance structure, a large black economy, lack of capital for basic infrastructural projects, and over-reliance on foreign aid money that generates harmful political-economic dynamics.

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