Taxing Truths

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Ireland is a tax haven. This simple statement of fact causes the most ridiculous responses. We get told that we are talking down the country, that we’re not wearing the green jersey. We even get the whopper, preferred by the Minister for Finance Pascahl Donohoe, that the recent OECD report confirmed we weren’t a tax haven.

Firstly, let’s deal with the facts. A recent study of tax havens, €600 Billion and Counting: Why High-Tax Countries Let Tax Havens Flourish, put numbers on what is essentially an organised, tax compliant and totally legal, global larceny. And no, there’s no contradiction in that sentence.

The first key finding is that 45% of multinational company profits are artificially shifted to tax havens. Ireland, as you can see below is the worst legal offender. 45% of profits whisked away to tax havens; that’s like saying that you or I could put almost half of our monthly salary into a tax avoidance scheme.

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The Global Corporate Tax revenue loss is estimated to be over €200 billion per annum, or 12% of Global Corporate Tax Revenue. To put that in context, the World Bank says that global foreign aid totaled €130 billion in 2016. So Multinational Companies shift nearly double the world’s total aid budget for tackling poverty into tax havens.

The next finding is a cracker; the main loser in tax revenue is the EU, with losses estimated to be above 20% of its taxable profits. Now, and here is where it gets mind-bending, the main beneficiaries of this legalised larceny are Ireland, the Netherlands and Luxembourg. 

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The 3-Tax-Haven-Amigos, not mentioned on the above graph, impose real effective tax rates of 2-3% on huge artificial bases and in doing so financially hamper the ability of the combined EU 27 countries to tackle various social crises. So definitively, Ireland is a tax haven.

That doesn’t mean that Minister Donohoe was wrong. He wasn’t, he was just being selective with the way he read the OECD report. The report that he was referencing was the OECD’s Tax Transparency Ratings and was dealing specifically with individual countries legal framework and legal implementation of their own tax laws.

Ireland was the only country of the 3-Tax-Haven-Amigos to achieve a rating of compliant. But rather than it confirming us as not a tax haven, what the OECD report actually confirmed is that we are the best tax haven. We have the most transparent tax avoidance structures in the world. It is, in sales-speak, our Unique Selling Point.

It starts and ends with transfer pricing. In simple terms: if Company A is operating in Germany but opens a small company Company B in Ireland which then assumes ownership of the intellectual property of Company A, then, even though Company A is producing and selling their product in Germany, the profits are taxable in Ireland via Company B.

This Transfer Pricing method, the study found, has resulted in high-tax countries stealing from each other, while letting tax havens flourish, in the name of free market competition. Companies like Apple, Google and Facebook have True Global Profits of totaling tens of billions, yet using the profit shifting are able to only show Observable Profits of hundred of millions.

This sounds like a good deal for Ireland and our other Amigos, right? Not really, no. The average profit for multinationals per employee in a non-haven is 34%. In Ireland it’s almost 200%. Simply put, Ireland gets one sixth the number of jobs equivalent to non-havens for the same money. See below:

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There is a simple solution to this conundrum, something that could end transfer pricing overnight and see a more equitable re-balancing of both the tax take and ultimately the workforce: make the profits taxable where the jobs are.

So if Company A employs 10,000 people in Germany and 5,000 in Ireland then it can only “shift” 50% of its profits.

This, I’d argue, is not something we should be afraid of. Rather than costing Ireland jobs, such a strategy should create more jobs. Remember, we are the most transparent tax haven in the world. Why wouldn’t the multinationals increase their workforce’s here if it meant increasing shareholder value?

So, yes, Ireland is a tax haven. That’s not up for debate any longer. The debate must now move on into how we make us the best little tax haven in the world in which to create jobs. An transparent low corporate tax, high job economy. It’s possible and it’s certainly a damned site more ethical than what we are currently doing.

Tony Groves

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Other Graphs of Interest: IMG_6431IMG_6425

 

          

One thought on “Taxing Truths

  1. Good piece T. Not sure that it’s an ethical matter – it is in a way, but then all societal allocation of resource is a matter of ethics, which might be another blog altogether!

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