Tax Havens
Facilitating Corporate Tax Avoidance is at Heart of What is Wrong
Here we have two investigative pieces in the Irish Times and the Guardian which show that jobs created by MNCs in Ireland are not necessarily the high quality, well paid types of jobs those defending Ireland’s tax avoidance system claim. The first illustrates that most of these are call centre jobs created to provide tech support for sales that may be registered in Ireland but are in fact generated in countries within and beyond Europe, Africa and the Middle East. As they require language skills far greater than even very well educated Irish workers normally have (Ireland has one of the lowest proficiencies in a second language in the OECD ironically enough) these are not jobs created for those who have been through the Irish education system. This is despite the fact that we are told that it’s not tax that attracts these companies but our well educated workforce. Again, this is attractive and is a credit to Ireland’s high level of completion at second level which is well above the EU average, but it’s being undermined and many of the skills that these companies require are in law and accountancy which narrows considerably the ability of people to think beyond the servicing of MNCs law and accountancy needs. It is hardly a coincidence that Cathy Kearney, which the Guardian describes as Apple’s ‘top lieutenant in Ireland’ is an accountant.
Corporation Tax: Ireland’s For Sale Sign
Because of the ongoing coverage of Apple’s Irish tax arrangements and the fact that Ireland is considered to be a Tax Haven by the US Senate once again, we have decided to publish a PDF version of my article Corporate Tax: Ireland’s For Sale Sign.
Over the weekend, the Sunday Times article, which uses new research by Jim Stewart where he shows that Ireland is the third largest tax haven for the US after The Netherlands and Luxembourg, got a fair bit of coverage. This finding shouldn’t be too surprising to anyone who was good enough to buy the first issue of Irish Left Review, or for matter, if they read the article by Mary Everett in the Q1 Quarterly Report from Central Bank of Ireland (April 2012, p56). In it the following table is used to illustrate how hard it is to figure out what is real economic activity and what is merely the movement of intra-company funds for the purpose of aggressive tax avoidance.
The fact that 90% of Ireland’s export activity comes from US companies and that the majority of that activity is the funneling of profits through tax havens we can see that the vast majority of Ireland’s export activity is simply tax avoidance. But that is not to suggest that this money remains in tax havens waiting to be repatriated. Ireland, like The Netherlands and Luxembourg, is only a conduit. The money actually resides in US bank accounts.
Over the weekend too, it’s reported that the Department of Finance is considering closing the double Irish scheme “created by Charles Haughey in 1990”, according to the Sunday Business Post. However, as Jim Stewart argues in his paper, “changes in tax law happen all the time because Ireland prides itself on being responsive to business needs. Apple did a big reorganisation of its company around 2005 and as part of that it would have had to renegotiate its tax liability with Revenue”. Indeed Apple were not the only company to reorganise in 2005. Apple, Microsoft and Johnson and Johnson all became unlimited companies, which shields their accounts from scrutiny. Google, which also uses unlimited companies, benefited from a change introduced last year which had been lobbied for by the American Chamber of Commerce in Ireland. According to Jesse Drucker of Bloomberg this led to the Dutch Sandwich, which routed profits from an Irish subsidiary to a letterbox company in the Netherlands back to an Irish incorporated company which is registered in the Bermuda for tax purposes also being no longer necessary. Now the money goes straight to the Irish company registered in Bermuda. This helped to cut Google’s tax bill by at least $2 billion a year, according to U.S. and overseas securities filings.
The following is taken from the opening section of my article, which provides an overview of the argument, but you can read the whole thing as a PDF here.
Yes, Say it Again: Ireland IS a Tax Haven and it’s Worked Hard to Be That Way
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).
Ireland Allows Google To Send it’s Profits Straight to Bermuda Company Which is Actually in Ireland
In my long article in the first issue of Irish Left Review on Ireland’s corporate tax regime I made the point that Ireland in effect sells its abilities to make tax laws to profit hungry MNCs, in much the same way as it sells to the rights to our natural resources to large oil companies. That is, whatever economic benefit there is, and its small, goes to the ‘agents’ who negotiate the deal, with very little, if any, benefit appearing in the economy.
Still, with all the attention being on Google for a while now, there was one fact about the Irish government’s arrangements with the search engine company that I had missed.
Recently these arrangements, known as the Double Irish with the Dutch Sandwich have been given a lot of attention and are often explained. For example, see this New York Times info graphic. However, while listening to Jim Stewart’s interview on Morning Ireland last Friday in a conversation about Google’s ‘grilling’ before the UK’s Public Accounts Committee on taxation, I found out that the ‘Dutch Sandwich’ is no longer used, and instead Google’s earnings from its EMEA market goes from Google Ireland to Google Ireland Holdings, which is registered in a solicitor’s office at 70 Sir John Rogerson’s Quay and also in Bermuda. So, by passing these to the Bermuda registered company, the earnings go straight to Bermuda. Google Ireland Holdings has no employees and is ‘owned’ by Google Bermuda which also has no employees. Both are unlimited companies, so under Irish law, they do not have to publish accounts.
AlJazeera English: Firms enjoy tax haven in bankrupt Ireland
A recent AlJazeera English report called Firms enjoy tax haven in bankrupt Ireland which uses a short excerpt from the recent Anarchist Bookfair IFSC walk tour.
Ireland is one of the country’s that’s been hardest hit by Europe’s debt crisis.But amid the austerity, billions of dollars are still flowing in and out of the economy.The problem for Ireland is that it is not collecting much of a share of the money. Laurence Lee reports from Dublin.
Ireland is Hardwired into the Tax Evasion Network
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
The New Dependency Theory
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.
Sins of the Father
Dublin Opinion
- Tax Avoidance : Fly-Tipping with Suits June 19, 2013[…]Conor McCabe
- Let’s make tax avoidance history… June 18, 2013[…]Conor McCabe
- Sad Putin at the G8… June 18, 2013[…]Conor McCabe
- The Gathering : Enniskillen-Style June 18, 2013[…]Conor McCabe
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