Irish Economy
OECD says Ireland must apply 12.5% corporate tax rate not 2%
By Michael Hennigan, Finfacts founder and editor
Jun 19, 2013 - 4:48 PM

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The director of the Centre for Tax Policy at the Organisation for Economic Co-operation and Development (OECD) said today that Ireland must charge 12.5% tax and not 2% if it wants to retain its tax regime.

Pascal Saint-Amans told a conference in Dublin that Ireland's tax regime was "low and attractive."

His reference to 2% relates to the US Senate Permanent Subcommittee on Investigations May report on Apple's use of Irish companies to avoid paying any tax or none on billions of dollars each year.

The G-20 (Group of Twenty: 19 leading advanced and emerging countries) summit next month in St Petersburg, Russia, will receive proposals from the OECD for changes in international corporate taxation rules that have been in place for decades and Saint-Amans is in charge of the project. 

Responding to Pascal Saint-Aman’s comments at a Department of Finance conference in Dublin today, Peter Vale, tax partner at Grant Thornton, said: “The OECD is engaged in important work to coordinate global changes on tax, and I am sure it is well aware that not only is Ireland’s headline tax rate 12.5%, but recent studies have shown that our effective rate is very close to this too. Ireland does not have a 2% tax rate and no Irish tax resident company pays tax at this rate.

A company may incorporate in Ireland but maintain its tax residence elsewhere. It can be misleading to look at the effective tax rate of such companies as they are not Irish tax resident. The profits attributable to their Irish operations are taxable at 12.5%, with these profits typically subject to OECD arm’s length rules.

Yes in Ireland we have a low corporate tax regime, but it is very transparent.”

1. As for "recent studies have shown that our effective rate is very close to this too" -- this is a misleading claim as a PricewaterhouseCooper's international comparison of the effective rates (tax paid as a ratio of net earnings) putting the Irish rate at 11.9% is in respect of a small domestic firm.

Microsoft has said its fiscal 2011 Irish effective tax rate was 5.69%; Google Ireland's was a fraction of 1%. It routes almost half its global revenues through Ireland. Facebook is among others that use the "Dutch-Irish sandwich" routine using resident Irish companies.

    SEE: Kenny's bogus Irish effective tax rate claim

2. The principal use of non-tax resident Irish companies is tax avoidance. It's ridiculous to suggest that we have no responsibility for what a tax expert told the House Ways and Means Committee of the US Congress, were "Irish shell companies."

3. The Irish corporate tax system is not transparent and the Revenue turns a blind eye to billions in overseas charges to minimise reported income. It's a different standard for local companies.

Some of Microsoft's Irish companies are unlimited; Apple's Irish companies have unlimited status and it does not have to file accounts in Ireland.

In an unlimited company there is no upper limit on the personal liability of shareholders for the company’s debts upon the company’s insolvency. William Fry, a law firm, says: "Although one might expect this type of company to be rare, 2% of all Irish companies are unlimited, and Ireland has more than twice as many unlimited companies as it has PLCs." However, LK Shields, another Dublin law firm, says it is possible to use a structure, using non-EU companies as holding companies, where an unlimited company can avail of the non-filing exemption while also providing the original shareholders with limited liability.

    SEE: Apple, Anglo Irish Bank and Irish company law

4. There isn't a 2% tax rate but it's naive to assume that commitments were never made by an Irish Government to keep the tax bill low. Besides, it's easily achieved by huge charges as filed accounts of the big US giants show.

The OECD's rich country members have ensured that no member including Switzerland can be termed a tax haven. However, it is either stupid or self-serving to argue that countries such as Ireland and the Netherlands do not facilitate tax haven activities.

Microsoft's fiscal 2011 accounts showed an 18% rise in revenues to €13.37bn but reported profits fell 58% to €593m as cost of sales grew from €770m to €1.15bn, while administrative expenses jumped from €9.13bn to €11.61bn. Net income before tax fell to 4.4%.

However, in 2011, Microsoft Inc. reported net income before tax of $28.1bn on revenues of $69.9bn - - a ratio of 40%, unchanged from 2010.

5. The national accounts and services exports data are distorted by tax strategies. Over 40% of reported Irish services exports are fake.

Prof John Kay says in the Financial Times today:

"In the main, however, tax authorities have preferred to cut deals with big corporations rather than pursue costly legal action. They will not do the same for you and me.

A serious reform agenda would involve a principled reappraisal of the basis for taxing corporations both nationally and globally, and a strategy for effective enforcement of existing rules. Such a strategy would make clear that executives of companies which present accounts to tax authorities that are essentially false, and the accountants who support them, will in future run serious risks. The door they hear closing behind them might be the door of a prison cell rather than the door of 10 Downing Street."

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Pascal Saint-Amans, director for the Centre for Tax Policy and Administration—OECD, discusses base erosion and profit shifting at KPMG International's Asia-Pacific Tax Summit in Shanghai, April 24, 2013.

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