Taoiseach Enda Kenny on Wednesday again repeated a bogus Irish effective tax corporate rate claim in defending the regime available for US multinationals. Also on Wednesday, the European Commission issued proposals on reducing the potential for tax evasion and today, a House of Commons committee published a report on tax avoidance by Google in the UK.
Google generated US$18bn revenue from the UK between 2006 and 2011. Information on the UK profits derived from this revenue is not available but the company paid the equivalent of just $16m of UK corporation taxes in the same period.
At an American Chamber of Commerce in Ireland event in Dublin Wednesday, where a new Europe-wide report ‘The Case for Investing in Europe' [pdf] was launched, the Taoiseach again denied that Ireland is a tax haven and said the country "did not operate a brass plate" system [the Chamber's report says gross output of American affiliates in Ireland represented roughly one-quarter of the nation’s gross domestic product in 2011 but note that this data has been massively distorted by tax avoidance].
He also said the Government had written to US senators stating the country had a 12.5% Corporation Tax rate and an effective rate of 11.9% according to a World Bank report.
In this debate semantics has a big role and provides wide latitude for economy with the truth.
Switzerland isn't a tax haven because it's a member of the OECD, a rich country club, that effectively defines a tax haven as an entity that relies on tax avoidance and evasion services for most of its income.
United States senators said Ireland meets the "common sense" definition of a tax haven.
As for brass plate companies, laws were tightened in the late 1990s but in practice, non-tax resident Irish companies are mainly used for tax avoidance, as the revelations on Apple to a US Senate panel confirms.
The effective corporate tax rate is the actual tax paid as a ratio of reported net earnings.
It is usually less than the headline rate because of various tax allowances /credits on for example equipment purchases, R&D spending and maybe losses forward.
In respect of big multinationals in Ireland, it is a meaningless metric as the reported net income can be reduced to a very low level or a loss through intercompany charges.
In 2011, Google Ireland paid €3m tax on trading profit resulting from €12.4bn in revenues; Apple's rate ranged from a fraction of 1% to a ceiling of 2% and Microsoft reported an effective 2011 tax rate of 5.69% in Ireland.
Kenny's cited 11.9% rate is from a report produced for the World Bank, by PricewaterhouseCoopers (PwC), the Big 4 accounting firm. Minister Richard Bruton has also quoted the rate. He at least should know that it is not generally applicable in the multinational sector.
The template firm is a pottery maker with 60 staff that sells all of its output domestically via a retail unit. It is in its second year of business and has losses brought forward from its first year of operation.
The European Commission proposed on Wednesday to extend its previous plans to restrict the opportunities for tax evasion. It said additional revenues should be covered in an envisaged automatic information sharing scheme.
EU member countries are already moving towards automatically sharing details on employment revenues, company directors' fees, pensions, life insurance and real estate income, with the corresponding information system currently scheduled to be up and running by 2015.
Wednesday's proposal by the Commission extended the system to information on dividends, capital gains and all other forms of financial income and account balances.
Algirdas Šemeta, EU commissioner for Taxation, Customs, Statistics, Audit and Anti-Fraud, said: " With today's proposal, member states will be better equipped to assess and collect the taxes they are due, while the EU will be well positioned to push for higher standards of tax good governance globally. It will be another powerful weapon in our arsenal to lead a strong attack against tax evasion."
The measures first need to be approved by the national governments and the European Parliament.
The Public Accounts Committee of the House of Commons has published a report [pdf] which charges Google with massive tax avoidance in the UK.
Margaret Hodge MP, chair of the committee, today said:
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