An eye-popping new study has just proved …
Ireland is not a TAX Haven.
Tax is a deeply politicised issue, both at home and internationally.
And in heated claims, Ireland ‘ has frequently been branded a tax haven from both sides of the Atlantic – most recently by the Brazilian Revenue Service and Oxfam who ranked Ireland as sixth worst in the world, but also in the US Senate, where Senators Carl Levin and John McCain flatly rejected Ireland’s claim, in 2013, not to be a tax haven. Meanwhile, more recently, Angela Merkel and Emmanuel Macron appear to be have restarted efforts-to harmonise corporation tax across the EU – a move clearly aimed at lower tax regimes.
But Ireland is not a tax haven. And for the first time ever, there is science to prove it. I refer to a novel and ground breaking study that cuts through the blizzard of bias and opinion to follow global corporate money movements estimated at over €20trillion-by deep-mining data across 91 million firms and 71 million ownership relations. The results are eye-popping.
Tasked with examining the opaque world of profit-shifting, Corpnet which is attached to the University of Amsterdam, and includes computer scientists and economists has divided the world up into conduit countries, through which vast amounts of profits travel – and their final destination, ie, the tax haven or sink country. These ‘sinks’ present themselves as having lenient regulation and outsized foreign assets and GDP relative to the natural size of their economies- the difference created by the hoarding of corporate wealth.
Conduit countries, through money travels legitimately, levy little or no taxation on transfers of interest payments, dividends, royalties or profits passing through them. The two largest ‘conduits’ are The Netherlands (23%) and the United Kingdom (14%). They are followed by Switzerland (6%), Singapore (2%) and Ireland, a veritable minnow at (1 %). Corpnet identifies Ireland as a conduit to Luxembourg for US and Japanese companies and a specialist in head office activities and financial leasing but we are tiny compared to the Dutch and the Brits.
EAGLE-EY.ED readers will quickly notice that many of the 24 ‘sinks’, are former colonial territories of the Dutch and British empires. Both of these countries, at different points in history, produced the world reserve currency. Britain today threatens Europe with becoming a tax haven after Brexit, but it is already a huge conduit. A hard Brexit is likely to see the British ramp up its role as a major player for global profit-shifting, especially if the EU clamps down on its internal ‘conduit’ and ‘sink’ countries as plans move forward for corporate tax harmonisation.
According to Corpnet, Europe has three tax ‘sinks’. But Ireland is not one of them. They are: Luxembourg, which has long been a traditional destination for neighbouring European companies; Cyprus, favoured by the Russians; and Malta, described by German regional finance minister Walter Borjan as the Panama of Europe. Branded the Eliot Ness of Germany (after the famously dogged Prohibition agent who waged a campaign against Al Capone), the North Rhine-West-phalia politician, after receiving a data leak this year, claimed that multiple German companies and taxpayers are registered in Malta, and that these offshore companies are set up to transfer profits or assets abroad to inactive mailbox companies. He has claimed these number as many as 70,000. Malta bas a headline rate of corporation tax of 35%, and will claim its regime adheres to EU and OECD guidelines. But allowing for 85% rebates to owners of these companies, the effective tax rate falls to 5% which may explain why the tiny island has ended up at No.8 on the list of ‘sinks’.
Why is this so important? The response to the Global Financial Crisis: cheap capital; money printing; and quantitative easing; (Central Banks buying up unloved securities at prices no one else will) have all acted as a vehicle to transfer to the pockets of the owners of capital. Meanwhile, the burden of debt has fallen on workers whose incomes, crushed by extra taxation, show little sign of growing. It is a widening wealth divide. So long as countries use their tax systems to pitch for mobile capital, multinationals and ultra high-net worth persons, armed with the finest tax minds that money can hire, will quite legally exploit loopholes by joining them up. It is a complex web – UK-based HSBC has 828 corporations across 71 countries, while Anheuser-Busch InBev, the brewer has 680 across 60 countries. In two years to 2009, Google moved the majority of its profits generated outside the United States to Bermuda through corporations in The Netherlands and paid an effective tax rate of 2.4% on all operations. The EU has claimed that Apple used a combination of subsidiaries in Ireland, The Netherlands and Bermuda to reduce its tax payments in Europe to 0.005% in 2014. Both the IMF and Tax Justice Network say that if tax was collected where business activity takes place, about €0.5trillion more would be collected to pay for public services, 40% of which is lost by developing countries, an amount that dwarfs what they get in aid.
The growing concentration of wealth in the hands of the few who own a lion’s share of these corporations has been a described as the ‘Plutonomy’, the apex of which are the billionaires, who live in tax havens surrounded by private security – and who determine their tax residency and relationship with the State purely on the basis of how much tax they choose to pay. Is it enough to rely on studies like Corpnet to clean up Ireland’s reputation? Why should we continue to offer public contracts to accountancy firms identified by Revenue as facilitating schemes it has successfully challenged under anti-avoidance rules? That is a question for the Minister for Finance.
Eddie Hobbs’s book, The Pivot, about the global financial system will be available exclusively from Jack & Jill Children’s Foundation in November, all revenues to go to paediatric nursing hours, info@jackandjill.ie