Panama Papers & Ireland: The unfair tax system became a controversial issue in the mid 1970s in Ireland and it took almost a quarter of a century for the Irish Revenue to be entitled to declare a partial victory on massive personal tax evasion and avoidance by the wealthy and self-employed. However, then Ireland evolved as one of Europe's top facilitators of corporate abuse of tax laws and systems and until the issue got prominence internationally in the past 3 years, the Irish media supported the status quo in ignoring the issue of tax avoidance and its distortion of the national accounts, in line with the wishes of Irish governments.


In recent decades Ireland did have tax controversies including lots of media attention about tax evasion and the Cayman Islands where Irish businessmen and senior politicians held secret offshore accounts at Ansbacher Cayman Ltd from 1971 into to the mid-1990s; banks opening thousands of bogus non-resident accounts located in places like the Isle of Man; banks fiddling the DIRT (Deposit Interest Retention Tax) scheme and in 1998 journalists at RTÉ, the national broadcaster, broke the story that the National Irish Bank actively encouraged tax evasion and systematic overcharging of customers.

Business tax fraud

When it comes to business tax fraud, the interest of the Irish media is not vey evident.

In 2002 the UK's HM Customs & Excise (from 2005 HM Revenue & Customs: HMRC) detected carousel consignments of computer chips shipped to Ireland in the first half of 2002 large enough in aggregate to have supplied the entire market for that chip in Europe, Asia and Africa put together.

From the late 1990s, UK revenue losses from what is termed Missing Trader/ carousel VAT fraud was growing by up to three quarters of a billion pounds each year. By 2001/2002, it was costing the UK taxpayer up to £2.75bn and it made some Irish business people/ gangsters very rich. In the first half of 2002, the category "Electrical Machinery (apparatus, appliances and parts)" in Irish trade statistics was inflated by more than £8bn in respect of both import and export trade with the UK.

It was the British Exchequer that was losing money and there was little attention given to it in Ireland from politicians even though it did appear intermittently in the media. In 2009 Ireland had opposed a proposal from the European Commission to counter the fraud as "disproportionate."

As for corporate tax avoidance, in 2004 Finfacts reported that Ireland was the world's most profitable country for US corporations, according to analysis by US tax journal 'Tax Notes.' In a study by the journal's Martin Sullivan, it was found that profits made by US companies in Ireland doubled between 1999 and 2002 from $13.4bn to $26.8bn, while profits in most of the rest of Europe fell. In his analysis Sullivan termed Ireland a 'semi-tax haven' for US firms, because firms are involved in real productivity in contrast with locations such as Bermuda.

Between 1999 to 2002, US multinational corporations increased profits in countries with no taxes or low rates by 68% while sharply reducing profits recorded in countries where they engage in substantial business activity, a study published in the journal 'Tax Notes' showed.

In 2005, Glenn R. Simpson of The Wall Street Journal brought attention to Microsoft's efforts to route for example profits on sales in Germany to Dublin on which the software firm paid Ireland at a lower rate than the headline Irish corporate tax rate of 12.5%. The Journal said a subsidiary, Round Island One Ltd., operated from the offices of a Dublin law firm and was one of the country's biggest companies, with gross profits of nearly $9bn in 2004 but it had no direct staff. Google and Facebook followed Microsoft's trail.

The Journal said much of Round Island's income was licensing fees came from copyrighted software code that originated in the US. Some of the rights to these lucrative assets ended up in Ireland via complex accounting rules on intellectual property

Through a key holding, dubbed Flat Island Co., Round Island licensed rights to Microsoft software throughout Europe, the Middle East and Africa. Thus, Microsoft routed the license sales through Ireland and Round Island paid a total of just under $17m in taxes to about 20 other governments that represented more than 300m people and $300m in taxes to a country of just over 4m.

WSJ report [free]

In 2006 in reaction to the WSJ piece, Apple Inc. had its Irish companies changed to unlimited status and Microsoft had arranged to have the status of some Irish companies changed also to end public access to financial information including on the Irish offshore shell companies in island tax havens.

Apple had also changed the name of Apple Computer Inc. Limited, its top Irish offshore/ shell company, operating from its Cork campus, to Apple Operations International in 2006 and in the same year as the company was experiencing rapid growth, it established a subsidiary named Braeburn Capital, in Reno Nevada, to avoid California's corporate tax. Its task was to manage investments and tax strategy.

In 2010, Jesse Drucker of Bloomberg News, reported that:

Google Inc. cut its taxes by $3.1bn in the last three years using a technique that moves most of its foreign profits through Ireland and the Netherlands to Bermuda.

In May 2013 it was the US Senate's Permanent Subcommittee on Investigations that lifted the veil on Apple's use of Irish offshore shell companies with addresses at its Cork campus, to route profits tax free from its big markets.

The committee's report said:

...information provided by Apple indicates that the Irish tax rate assessed on Apple affiliates has recently been substantially below 2%. For example, Apple told the Subcommittee that, for the three year period from 2009 to 2011, ASI (Apple Sales International) paid an Irish corporate income tax rate that was consistently below far below 1% and, in 2011, was as low as five-hundreds of one percent (0.05%).

Apple's executives had provided evidence on its tax arrangements under oath but on 21 May 2013, Tim Cook, Apple's CEO, testified at a hearing by the Senate Permanent Subcommittee on Investigations and said.

We pay all the taxes we owe — every single dollar. We don't depend on tax gimmicks.

In the fiscal year ending September 2012, Apple's foreign tax rate on about 65% of its total profits was 1.9%.

In 2006 Apple had decided that the Irish shell companies were "stateless" for tax purposes and Apple's foreign tax rate tumbled from 2007.

The Irish establishment including the mainstream media was shocked by the US Senate's report on Apple and ministers denied that Ireland was a tax haven; had ever made special tax deals with foreign companies like Apple; the Irish tax system was absolutely "transparent" and the effective rate of corporation tax was close to the headline rate of 12.5% not in low single digits based on date provided by US companies.

On 22 May 2013, The Irish Times in an editorial supported the Government's position a day after Tim Cook's testimony on Capitol Hill:

The charges made now need to be countered, speedily and effectively, by both political and diplomatic means. First, by Government setting out a clear narrative on corporate tax that can be easily understood — at home and abroad — and that rebuts some of the erroneous claims made. Second, through a major diplomatic initiative in the US to ensure there is a better understanding of the Irish position on corporate taxation [ ] As the Taoiseach has pointed out, claims that Ireland is a tax haven are unjustified. The OECD, the international arbiter on the issue, has already decided that Ireland meets none of the criteria of a tax haven.

Meets no criteria? That was joke as OECD does not recognise corporate tax havens in Europe — the Netherlands, Switzerland, Ireland and Luxembourg — that are members of the organisation and after all none of them were (island) tax havens with palm tress arching over sandy beaches!!

When a letter from the Irish ambassador in Washington DC to the US Senate subcommittee, claimed that the OECD had decided that Ireland wasn't a tax haven, and also implied that Ireland had no responsibility for billions in transactions that were routed through Irish shell companies in places like Bermuda because the companies were considered non-resident for tax purposes, he got a curt reply from senators Carl Levin and John McCain:

Most reasonable people would agree that negotiating special tax arrangements that allow companies to pay little or no income tax meets a common-sense definition of a tax haven.

Colm Keena in Saturday's issue of The Irish Times has a piece 'What the Panama Papers tell us about Ireland' — he doesn't mention the role of the media or the lack of it and over the years he would likely have been more active in this area but for editorial constraint. 

The Irish mainstream media avoided the issue of corporate tax avaoidance until it became an international issue, as the establishment view was that jobs would be put at risk by antagonising giant US companies.

The attitude pointed to the failure to develop a significant indigenous exporting base over 60 years.

Apple, tax Ireland, shell companies

Tax avoidance and evasion

The US Internal Revenue Service (IRS) says "Tax avoidance is perfectly legal and encouraged by the IRS, but tax evasion is against the law: tax avoidance — An action taken to lessen tax liability and maximize after-tax income; tax evasion — The failure to pay or a deliberate underpayment of taxes.

What would be considered tax fraud in respect of minnows is a very different when it comes to multinational giants.

Not all rules are codified in statutes and senior revenue authority officials have discretion on issues; the big firms' tax adviser maybe a former revenue official, while executives may have direct access to government ministers, which is common in Ireland. Enda Kenny, taoiseach, in March 2014 told potential American investors to phone him if they had any "anxiety"; he has met Apple's Tim Cook in both Cork and Dublin since early 2014 and has visited Silicon Valley to assure tech companies of the Irish Government's support.

In Ireland the small business owner in breach of tax rules risks being publicly named as a tax dodger, disqualified as a director and imprisoned. He or she cannot afford to pay for example high charging accountants and lawyers to defend transactions with for example shell companies. It's common elsewhere as well.

Google was branded devious, calculating and unethical at a meeting of the House of Commons Public Accounts Committee (PAC), just weeks before Eric Schmidt, Google executive chairman, met David Cameron, British prime minister, at 10 Downing Street in May 2013.

The House of Commons PAC said in 2013:

We have long been concerned that, despite HMRC having customer relationship managers for large businesses to understand these organisations, and its overriding duty to collect all tax due, it has not done enough to tackle corporate tax avoidance. In the case of Google, we could not understand how a few journalists, whistleblowers and MPs have uncovered what the Department had not.

In some businesses if senior people make disastrous decisions, they go bust and in the accounting/audit sector it did happen in 2002 when Arthur Andersen folded after a decade of involvement in major accounting scandals.

Like the ratings agencies the Big 4 accounting firms survived intact despite stupidly giving their seals of approval to dodgy banks.

Michael Hudson and Sasha Chavkin, of the International Consortium of Investigative Journalists (ICIJ) have written here that:

Global accounting giants are prime architects of the offshore money maze — and supporting characters in an array of offshore scandals [ ] A review of court cases, government records and secret offshore files unearthed by the International Consortium of Investigative Journalists reveals that the Big 4 firms are central architects of the offshore system — and key players in an array of cross-border transactions that raise legal and ethical questions.

Profits, earnings US foreign subsidiaries