Wednesday, January 13, 2016

Ireland - the tax haven

 ‘We’re not a tax haven, we have never been involved in any kind of tax malpractice’ – Michael Noonan, Irish Minister for Finance 5th October 2015

 ‘Nobody is using Ireland as a tax haven’ - Minister for Agriculture, Simon Conveney,

The UN’s Philip Aston says, ‘When lists of tax havens are drawn up, Ireland is always prominently among them’. Following their investigation into the tax affairs of Apple, Senators Carl Levin and John McCain similarly found that by any ‘common sense definition of a tax haven’ Ireland easily met the criteria. When Forbes regularly ranks you in their list of ‘Top ten tax havens’, there’s not really much of a debate to be had. Richard Murphy the economic adviser to Jeremy Corbyn says, “No one believes companies locate in Ireland because of great employees, infrastructure etc. They just think of tax-dodging as the first, last and only reason.”

The pharmaceutical giant Pfizer’s announced last month that it was relocating its HQ to Ireland  solely to slash its tax bill.

There’s a small building located at 5 Harbour Master Place which houses around 250 companies controlling almost €2 billion worth of assets, but he won’t find any employees – because there are none. 

The tax haven strategy was born back in the 1950s after a range of tax exemptions on corporate income and profits, as well as offshore tax exemptions were introduced. But it was the late 1970s before things really got going, as our Industrial Development Authority (IDA) began marketing Ireland abroad as a ‘no tax’ regime, and the idea of establishing a dedicated Irish Financial Services Centre (IFSC) was hatched.

Former head of the IDA and one of the IFSC’s chief architects Padraic White, co-authored the book The Making of the Celtic Tiger. In the book he describes how he recruited Bob Slater, a Wall Street expert on offshore banking, who ‘examined the success of Bermuda in creating jobs in financial services, and he was satisfied that Ireland could emulate its achievement.’ Ireland planned to create its very own Bermuda triangle, where money disappears. The plan was revived in the 1980s following the election of a new government under the notoriously corrupt Charles Haughey, a man who would siphon off the equivalent of 45 million euro in today’s money whilst being central to one of the largest tax evasion scams in the history of the state. Today the IFSC administers almost 50% of global alternative investment funds (hedge funds, venture capital, derivative contracts, mortgage back securities, etc) and with its low taxes and light regulation has disparagingly been referred to as the ‘Wild West of European Finance’.

The two defining characteristics of a tax haven are; (1) a jurisdiction there is little/no tax liabilities for foreign individuals/businesses and (2) where key financial information is suppressed. Ireland, as we shall see, easily ticks both of these boxes.

1) Tax!? No thanks, we’re a multinational

The  12.5% corporation tax rate is often referred to as the ‘cornerstone’ of our economy, but the amount that’s usually paid is as little as 2%, and sometimes it’s nothing at all. Between 2007 and 2012 the likes of Google, Microsoft, and pharmaceutical giant Abbott Laboratories, all managed to pay less than 1% tax on their profits.  They do this through a process called transfer pricing, also known as profit shifting. With 60-70% of global trade now done intra firm big multinationals are more likely to trade with different subsidiaries of themselves than with rivals. This brings opportunities to artificially shift profits from high to low tax jurisdictions.

And here in Ireland we wrote the book on the transfer pricing. Well ok maybe we didn’t write the book, but the Irish Tax Institute does run specialist courses in the thing, advertising it as ‘The only global event that brings you the ‘’how to’’ of transfer pricing’.  The ITA are speaking from experience, many of them having worked for the 4 big accountancy firms based here (PricewaterhouseCoopers(PwC), KPMG, Deloitte and EY) who assist multinationals in evading tax. For example a recent report by the British House of Commons Public Accounts Committee found the PwC was promoting tax evasion on an ‘industrial scale’.

One particular incident from their report focused on PwC’s orchestration of a loan by Shire Pharmaceuticals between its subsidiaries in Ireland and Luxembourg, which assisted them in dodging a huge bill that should have been due to the Luxembourg authorities.

See who Ireland’s biggest ‘trading partners’ are? Yes in first place it’s Bermuda, and this is in no small part thanks to Google shifting its profits between Google Ireland Ltd and Google Ireland Holdings, which is a Dublin-registered company that’s actually located in Bermuda. This direct investment data does not signify any genuine economic activity taking place, rather what it demonstrates is how Ireland allows the Googles and Shires of this world to shift their profits between their different subsidiaries in order to dodge tax.

2) The Secrets kept

A climate of financial opacity is the other major characteristic of a tax haven. So its little wonder that a recent report by 19 European non-governmental organisations found that Ireland’s lack of “financial and company transparency” is one of the chief reasons it’s such an attractive location for corporate subsidiaries. The problem with this kind of corporate secrecy is that it tends to attract those with something to hide. Here’s a trio of examples which illustrate how Ireland helps to facilitate such secrecy.

Firstly there’s the case of Apple who are currently (and welcomingly) being investigated by the European Commission to see if they arranged a number of illegal ‘sweetheart’ tax deals here. Ireland’s strict law surrounding taxpayer confidentiality has meant that these deals, although widely suspected, have been beyond the scrutiny of both the public and our national parliament, despite being of huge significance to the public purse. If found guilty Apple could be forced to repay the state for up to ten years’ worth of tax, a figure that JP Morgan estimates could be as high as €19 billion. And as anyone who has been paying attention to Irish affairs over the last few years could surely attest – we could really do with the money. Unfortunately our government is preparing to take a case to the European Court of Justice to oppose such a ruling.

Next up is our shadow banking sector which enjoys a similar opacity. For instance Special Purpose Vehicles (SPVs) like mortgage backed securities (MBS), which we all know played a major role in the global financial crisis, aren’t even regulated by our Central Bank who claims their job is to regulate firms rather than specific instruments. Prior to 2008 they didn’t even bother to keep a record of how many of these institutions were operating here. In the wake of the crash pressure was put on the Irish state to place greater oversight on the industry. We responded by hiring just two people to supervise an entire sector worth €2,250 billion. But it just shows how serious our government was on shining a light on the shadow banking industry.

Lastly is the area of offshore trusts, a means of avoiding tax so common that even the dogs on the street could tell you what they’re used for. The users of trusts enjoy relative anonymity which makes it difficult to ascertain who owns them, what assets they control and thus how to tax them.  That’s why the establishment of a public register of all the beneficial owners of companies and trusts is presently being pursued at the European level. Unsurprisingly our government, along with the likes of Luxembourg, are lobbying hard behind the scenes to have the idea shot down.


Ireland’s tax haven strategy and legal framework undercuts the tax laws of other nations by encouraging economic activity to relocate here purely in order to dodge tax. Christian Aid estimates that the loss to developing countries from the kind of transfer pricing operations that Ireland facilitates is somewhere in the region of $160bn annually, with developed countries like America losing around $60bn per year.

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