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News : Irish Economy Last Updated: Jan 28, 2013 - 6:41 AM

Kenny in Davos: Ireland's tax regime is "very clear, very transparent"
By Michael Hennigan, Finfacts founder and editor
Jan 25, 2013 - 8:30 AM

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DAVOS/SWITZERLAND: Taoiseach Enda Kenny, gestures during the session 'Eurozone Crisis - Building Resilient Institutions' at the annual meeting 2013 of the World Economic Forum in Davos, Switzerland, January 24, 2013. swiss-image.ch/Photo Monika Flueckiger

In the week when Irish authorities asked the High Court for a time extension to examine an estimated 25m documents in connection with alleged accounting manipulation at the former Anglo Irish Bank, Taoiseach Enda Kenny, on a panel with other European prime ministers, at the annual meeting of the World Economic Forum in Davos, Switzerland, said on Thursday that Ireland is not a tax haven for unorthodox practices and Ireland's tax regime is "very clear, very transparent." He also said the effective corporate tax rate is 11.9% compared with the headline rate of 12.5%. One claim was false and the other was very misleading.

Lionel Barber, the Financial Times editor, was the moderator of the panel discussion and he had raised the issue of corporate taxes.

Also on Thursday at Davos, David Cameron, British prime minister, described the priorities for the United Kingdom’s 12-month presidency of the G8 (Group of Eight countries: US, Japan, Germany, UK, France, Italy, Canada, Russia) as being trade, tax and transparency. “Some companies need to wake up and smell the coffee,” said Cameron, referring to his governments’ stated intention to clamp down on corporate tax evasion. It was also likely a less than subtle dig at Starbucks which has been at the centre of a controversy in the UK about large US multinational companies operating in Britain that pay low taxes or none on significant sales revenues.

Taking questions from the audience, Cameron defended the accusation that his EU reforms and aggressive tax stance may damage business confidence in the United Kingdom, saying the UK will soon be one of the lowest tax countries in the world with a corporation tax approaching 20%.

“I’m a low-tax conservative,” he said. “I’m not a ‘companies should pay no tax’ conservative”.

Enda Kenny's claim that the Irish corporate tax regime is "very clear, very transparent" is false as several of the biggest companies: Intel, Pfizer (both branches of foreign entities) Apple which declared itself unlimited in 2005 and Microsoft (partly) either in whole or part do not allow access to their Irish financial accounts.

Even when the accounts are available such as Dell's which shows it to remain as Ireland's largest goods exporter despite closing its main Irish plant in 2009, the reality can be obscure.

The claim that the typical effective corporate tax rate in Ireland is 11.9% - - is very misleading. 

The effective rate is the actual tax due - - after allowing for credits such as the self-assessed credit of 25% of R&D spending (which can encompass many things) and other credits such as capital allowances on investments - -  as a ratio of revenues.

The 11.9% rate comes from a report, 'Paying Taxes 2013,' that was produced by PricewaterhouseCoopers (PwC), the Big 4 accounting firm.

The case study company is:

  • A limited liability company;
  • Produces ceramic flower pots and sells them as a retailer;
  • Operates in the country’s largest business city;
  • Is 100% domestically-owned and has five individual owners;
  • Has purchased capital equipment for use in the business;
  • Has 60 employees;
  • Sells a property and realises a capital gain during the year;
  • Pays a dividend at the end of the year;
  • Is in its second year of operation;
  • Has a trading loss brought forward from previous year.

Google Ireland's effective corporate tax rate on the 45% of global revenues that were diverted to Ireland in 2011, was 0.18%.

The US Permanent Subcommittee on Investigations said last September that it had received information from Microsoft which shows transactions with subsidiaries in Ireland, Singapore, Puerto Rico and Bermuda that enabled it save at least $6.5bn in taxes. The committee also revealed that Hewlett-Packard Co. (HP) has used a series of short-term inter-company loans that allowed the company to get access to its offshore cash for domestic operations without paying taxes.

In the 2011 fiscal year, Microsoft had global revenues of $69.9bn and earnings before tax of $28bn. Microsoft’s global book tax rate was 17.5%. Microsoft had approximately 90,000 Microsoft employees worldwide in 2011. Based on consolidating financials (without eliminations within those groups), in FY 2011 the Irish, Singapore and Puerto Rican companies earned approximately $15.4 bn in earnings before tax (EBT), or approximately 55% of global EBT. The average effective book foreign tax rate for the Irish, Singapore and Puerto Rican companies was approximately 4% - - 5.69% in Ireland; 2.78% in Singapore and 1.03% in Puerto Rico.

The committee said that Microsoft pools its worldwide research and  development expenses, which totaled $9.1bn in FY2011. The participating entities each pay a portion of the research and development cost based on the entity’s portion of global revenues. For instance, Microsoft’s Irish operating centers account for roughly 30% of the company’s global revenue, so the Irish entities contribute 30% of the cost of research and development to the global cost share pool.

However, Microsoft Ireland Research (MIR) in Dublin, only accounts for less than 1% of the company’s total R&D.

The important issue here is not that the 12.5% Irish corporate tax rate is under threat or that Ireland's location as a base for American investment is in peril.

It's the reality that massive tax avoidance by large companies is being investigated in the US and Europe and measures are going to be enacted to curb it.

The Irish Government tries to ignore it even though in services, fake bookings in Ireland result in huge overstatement of revenues. It feeds into spin that masks a reality.

The Revenue also turn a blind eye to the issue and huge charges are needed to offset the value of the diverted revenues and enable big transfers to offshore locations.

It is accounting manipulation on a huge scale compared with the alleged claims in respect of the former Anglo Irish Bank.  

PwC: Corporate income tax -   a global analysis [pdf]

PwC: Data tables  --  Table 4, page 155  [pdf]

These are a number of other report links that seek to present a Reality Check:

Irish Economy: Sustainable growth dependent on foreign firms since 1990; Now FDI has peaked

Irish Economy: Actual Individual Consumption per capita in Ireland is at EU average along with Italy; Germany at 20% above and UK at 18% - - IrishGDP per capita is 29 % higher than the EU average but that statistic is misleading.

Irish Economy: Pharmaceutical patent cliff no growth threat; High exports have low impact

Irish Economy: Export growth insufficient to pull domestic economy out of recession

Irish Economy 2012: At least a third of value of Irish services exports is overstated

Dell remains Ireland's biggest manufacturing exporter despite closing Limerick plant

Irish Economy 2012: Only 50,000 Irish direct workers responsible for 69% of annual Irish exports

Irish Economy: Innovation, a failed enterprise policy and inconvenient facts for 2013

Kenny speaks from about 37 minute

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