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).
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.
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.
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 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.
The Government seems to have done a U-turn on the issue of tax exiles. Despite the Programme for Government’s commitment on the issue, the Sunday Business Post reports that following an avalanche of submissions from the likes of the American Chamber of Commerce, etc. the Minister for Finance looks to do nothing. Why? Because it would undermine investment.
Do we see a pattern? If we increase taxes on high-income groups or the business sector we will lose out on investment. How valid is this argument?
Let’s bottom-line this: if maintaining a low-tax regime, whether on high-income earners or the business sector, is the key to ensuring high levels of investment in the economy, then that policy has already been judged to be an utter and absolute failure.
Okay, now let’s work through some arguments.
First, Irish high-income earners pay a lower tax rate than equivalent earners in most other EU-15 countries. The following is from the OECD Tax and Benefits Calculator, using a two-income household example where one person is earning twice the average wage and another person earns 1.67 the average wage. In Ireland, this equals €118,750.
I heard a Fianna Fail TD saying on the radio that the decision to tie the household charge and the property tax to the funding of local councils was an attack on local democracy. As central funding through general taxation has been removed a failure to collect adequate amounts of the property tax means that funding of local services will be smaller.
Allowing local authorities to increase that charge puts the negative political feedback, particularly in areas where compliance is less, like Donegal, on to the local councils and protects the central government. It was an odd sensation, shouting at the radio (not unusual) in agreement with someone in Fianna Fail (which very much is).
However, I would add that with a smaller budget because of the problems of collecting the Household Charge and the property tax – and the structure of the property tax is almost exactly the same as the household charge and its associated problems, with good reason – means that it would require additional cuts to services.
This will follow the now established pattern of replacing publicly funded publicly owned services with private operations. Again, as has been well established, the private operation will be less efficient, more costly to the public purse in the medium term and the tendering process will be corrupt or suspect, with small operators losing out to larger conglomerates leading to a monopoly situation for the provision of these services after an initial flurry of 'competition'. It’s also been well established that Public Private Projects have been seen for over a decade as a growth opportunity for financial institutions in the IFSC, and the present government has recently provided them with a very specific kitty just for this.
The Silicon Valley boss went on to suggest that Google would not turn down the opportunity to draw on the big savings allowed under the law in the countries it operates in: “It’s called capitalism. We are proudly capitalistic. I’m not confused about this.”
I wonder if Enda Kenny would state that he is also proud of the incentives his governmnet offers Google to avoid almost all of its Irish corporation tax obligations based on the profits that Google earns per year. Because through Irish law we allow Google to claim that Google Ireland Holdings is not actually Irish but is rather a Bermudian company even though it's registered and uses secretary services of Matsack Trust Limited, 70 Sir John Rogerson's Quay, Dublin 2. From the US tax point of view Google Ireland Holdings doesn't exist, even though it owns Google Ireland Limited which it does recognize. Google Ireland Limited is where, we are told, all the sales from Google Europe (also owned by Google Ireland Holdings, which is turn is owned by Google Bermuda) and wider afield are booked. This could be changed in the morning by simply requiring that a company has to be legally domiciled where its operations are. Even the Irish accountancy and legal firms offering tax avoidance advice to multinationals like Google are saying that this probably is going to have to happen at some point, even though they say that the offical tax rate should come down to 2 or 3% (currently Google only pays 0.14 according to a report in the Sunday Independent and employs )0.06% of the workforce.
Unfortunately the Labour leader has produced no figures to support his claim.
Will individuals or households earning over €100,000 per year pay €500 million to €646 million in extra taxes as Gilmore claims? The answer for 2013 is a straight no. The answer for 2014 is far from clear.
Of course taxing wealth and taxing the wealthy are not the same thing. To know how fair the tax proposals in the budget really are we need to know how much will be paid by the wealthy.
Very few of the tax proposals in Budget 2013 specifically target high earners or those with significant levels of wealth
The 3% USC increase on pension incomes and the ending of top splicing relief will clearly impact on those whose wealth is above average, including some very wealthy people.
The changes to capital gains, capital acquisitions and deposit retention taxes again would impact a range of income groups, though one can reasonably assume the bulk of additional revenue under these headings will come from those whose wealth is above average, again including some very wealthy people.
But let’s give Eamon Gilmore the benefit of the doubt and say that all of the projected income under these measures will come from the wealthy. For good measure let’s also throw in the €1 million to be raised from the benefits in kind on preferential loans.
In 2013 these measures are projected to bring in an additional €156 million and in 2014 a total of €179 million (see Table 1).
Whatever about the leaks, the underlying thinking in much commentary and policy analysis shows why some people will get hit very hard. Yes, those on social protection should look out –especially around secondary benefits and eligibility. And pensioners – many of their programmes will be sliced if not totally jettisoned. If you’re unemployed, don’t expect much help from the budget (it will end up destroying jobs – especially through investment cuts).
What struck me most is the proposition that Child Benefit should be taxed. This featured on RTE’s This Week (the weblink to the programme is unfortunately not available). The Minister for Social Protection claimed her preferred position was to tax Child Benefit since this would protect the most vulnerable. The ESRI’s Professor John Fitzgerald made a similar statement – that those on high incomes would be taxed while the vulnerable would be spared. This view shows a lack of appreciation of what can happen to hundreds of thousands of households struggling on modest incomes.
Of course, Child Benefit will not be taxed in this budget; apparently, the computers in Revenue and the Department of Social Protection still can’t ‘talk’ to each other. And here’s another thing: taxing universal benefits does not undermine the principle of universality. Taxation can introduce a progressive feature in payments that are granted to all, regardless of income or employment.
But the emphasis on ‘protecting the vulnerable’ ignores the fact that people at work are also vulnerable. Yet it is this crucial group that would be hit in the ‘preferred option’. It underlines a view that social protection is for the poor, rather than for protecting the social.
What would happen if Child Benefit were taxed? How would some income groups be hit? Those on social protection would be protected – but low and average paid should watch out.
I have to put up the latest and greatest episode of the Live Register.
It's an excellent exploration of the Irish financial services sector and its exaggerated yet highly influencial role in the Irish economy. It talks about the Clearing House Group, Hedge Funds, tax avoidance and transfer pricing, the origins of the IFSC, light-touch regulation, ultra low tax, what happened to Depfa Bank, Brass plate companies, the reality behind the employment myth in financial services and much much more.
Guests include Shane Brett, Harry McGee and Professor Jim Stewart.
“A treasury management subsidiary is a common feature of MNCs. Treasury Management firms are the conduits for the global movement of intra-firm financial flows by MNCs. They often form part of a complex organisational structure whose immediate parent may be located in a tax haven (Stewart, 2005). (pg3)
A database of all Irish registered companies was searched in order to identify Treasury management firms. Ultimately 41 firms with available accounting data were identified. These firms are of considerable economic interest. The median size in terms of gross assets in 2002 was $379 million, median profits in 2002 were $6.3 million ($9.6 if those reporting losses are excluded) but the median number employed was zero.(pg4)”
‘The Irish Times understands that the Government is under pressure from the EU-IMF-ECB troika to reduce the duration for which the means-tested jobseeker’s benefit is paid. At present the payment – worth up to €188 a week – is paid for up to 12 months to people who are out of work and covered by social insurance. However, this would be reduced to nine months under proposals to be considered by the Cabinet. As a result, those on the benefit would face moving on to means-tested jobseeker’s payments much earlier. This would see thousands of people receiving lower rates. The move is aimed at encouraging people to seek work, or what policymakers call a “labour activation measure”'
The report above is somewhat confused – Jobseekers’ Benefit is not means-tested (this could be a typo). But you get the point: increase means-testing.
This is being presented as a ‘work incentive’ measure but in truth it is cost-cutting measure – for many households, once their Benefit runs out they will either be excluded from Assistance (e.g. if their partner is working) or have the payment cut because they have savings, etc.
Or it is an attempt to drive people back into the labour market at lower wages; more people competing for fewer jobs has that effect. Whichever, It will represent one more step in degrading an already enfeebled social insurance system.
But let’s take a step back and look at the wider picture. To what extent does Ireland means-test its social protection payments compared to other EU countries? There is a powerful lobby calling for more means-testing in order to ‘direct money to those who most need it’. How do we compare now?
We are constantly assured (warned) that ‘everything is on the table’. All manner of tax increases and spending cuts are being considered, and none are ruled out in principle. So, goes the script. There is one issue, however, that is not on the table. It is not even in the room. It is not even in the house or lurking around the grounds. And that issue is the corporate tax rate. Why?
If we increased the corporate tax rate, this would undermine our ability to attract foreign direct investment. This, in turn, would result in fewer jobs being created and put current jobs at risk; further, it would lower exports which would skewer our balance of payments. All that value-added and economic activity would be jeopardised.
Ireland is not just a league-leader, it is off the chart. MNCs here make more than four times the profit per employees than the average of the other EU-15 countries reporting (no data for Belgium or Greece). No wonder more and more multi-nationals are making Ireland their home. It should be noted that this Eurostat data does not include the financial sector so the massive profits being made in the IFSC are not included. Nor does the above include taxation – we’ll come to this later.
Peter Bofinger is someone I've been reading and reading about in the last couple of days as the trouble at mill continues with Ireland’s bank debt, Germany’s stance on legacy assets and Kenny’s rewriting of history to suggest that the Irish government didn't unilaterally provide a blanket bank guarantee before the EU could scramble together an EU wide solution to the immediate banking crisis in late 2008.
According to his Der Spiegel bio Bofinger has been a ‘member of the government-appointed German Council of Economic Experts known colloquially here as the “Five Wise Men” since 2004’. So, as a key adviser to Merkel his opinion carries some weight.
So in the current context it’s worth being aware that Bofinger pointed out in November 2010 that Ireland’s bailout was in effect a bailout of German banks.
SPIEGEL: According to the Bundesbank, German banks with 166 billion euros are the biggest creditors of Ireland, of which nearly one hundred loans to Irish banks. How dangerous is the Irish financial crisis for Germany?
Bofinger: The situation is very threatening. The federal government has a vital interest have to secure the solvency of the Irish state and its banks.
SPIEGEL ONLINE: The Irish Finance announced discussions on an EU bailout package. Germany should now also save Irish banks?
Bofinger: The rescue of Irish banks also means the rescue of German institutions.The demands of foreign banks to Irish debtors amount to about 320 percent of Ireland's gross domestic product. One has to ask the question of whether the Irish government would ever be able to stand up for such a high debt.
Working on the last few pages of a chapter for a book edited by Colin Coulter and Angela Nagle. I’ve just been rigid with anger over the last couple of weeks - more than usual - and I think the process of writing this chapter is the reason why. This little paragraph sums it up […]
Speaking tomorrow in Galway before Donal O’Kelly’s performance of Bat the Father, Rabbit the Son. The title of the talk is: All the Devils are Here - A Short History of the Irish Entrepreneur. All welcome. […]