EU summit on tax evasion/avoidance, Brussels, May 22, 2013: Enda Kenny, Irish taoiseach; Dalia Grybauskaite, president of Lithuania; François Hollande, president of France; Angela Merkel, German federal chancellor; Martin Schultz, president of the European Parliament.

Irish Economy: Senior Irish officials have reacted robotically to the US Senate panel's report [pdf] this week on Apple's extensive tax avoidance activities involving three Irish companies, with prominence given to the Irish claim that the tax system is  "transparent" while highlighting the importance of protecting the low Irish corporate tax rate of 12.5% -  - even though that is not under threat. Beyond the crisis fire-fighting, there is no credible Irish strategy to meet the challenge of creating 200,000 net new jobs in coming years. 

The Irish corporate tax system is not transparent as claimed and while the Irish government rejects a statement in Monday's Senate Permanent Subcommittee on Investigations report that "Apple told the Subcommittee that it had obtained [a] special rate through negotiations with the Irish government," ministers have not denied that special deals can be done with individual companies, that would keep their tax liabilities low.

Noonan not transparent on Apple taxes and US Senate report

Following a report in The Wall Street Journal in November 2005 ["A law firm's office on a quiet downtown street here houses an obscure subsidiary of Microsoft Corp. that helps the computer giant shave at least $500m from its annual tax bill. The four-year-old subsidiary, Round Island One Ltd., has a thin roster of employees but controls more than $16bn in Microsoft assets. Virtually unknown in Ireland, on paper it has quickly become one of the country's biggest companies, with gross profits of nearly $9bn in 2004"], Microsoft had its Irish tax-related units changed to unlimited limited status at the Irish Companies Office to shield financial accounts from public view and Apple did the same.

This year, ministers have bragged about the jump in services exports but this was thanks to tax-related revenue diversions from other countries by companies such as Google to Ireland -- not related to activity in Ireland.

Headline services exports in 2012 overtook the value of goods exports for the first time with the category 'Computer services' jumping by 15% and two 'Business services' categories rising in total by 13%.

Last February, Michael Noonan, finance minister, attributed the jump in services exports to “the significant price and cost adjustments that have taken place in recent years.”

This claim is a fairytale as the facts in respect of Google and Apple, suggest otherwise.

In the past decade, Google and Facebook have joined Microsoft in diverting significant global end-user revenues to Ireland and Apple's Irish services operation which is responsible for the world outside the Americas and China has been part of a rapidly growing company.

In 2012 but for tax-related accounting transactions at US multinationals, Ireland would have reported that the economy shrank.

Google Australia and other units helped Ireland to report  that GDP grew by 0.9% in 2012.

The Department of Finance, Central Bank, ESRI and private lobby groups such as IBEC, treat the services surge as real when it's a fantasy.

A senior official of the International Monetary Fund told Finfacts last month that the Fund is discussing with the Central Statistics Office, the exclusion of the FDI (foreign direct investment) sector from the national accounts data, to get a better picture of the real economy.

What are the implications of the current international focus on tax avoidance for the Irish economy?

• International corporate tax reform would result in a plunge in reported Irish exports as over €40bn of the reported total of €91bn for Irish services exports in 2012, is effectively fake - - we did extensive research on this issue in early 2012;   
• Irish policy makers have relied on the conflation of the FDI and indigenous sectors to present a better story on the performance of the Irish economy than the reality. So combined with falling goods exports because of the so-called drugs patent cliff, the reality would look murkier as Ireland returns to international bond markets;
• Reliance on services exports to provide evidence of growth in coming years, will be dashed;
• In terms of taxes paid, Ireland gains very little from the huge revenue diversions. Google provided €3m in tax on trading profit minimised by internal group charges, from 2011 €12.4bn revenues;
• Ireland needs a net 200,000 new jobs but where is the jobs engine?
• A recovery will not bring growth that will take off "like a rocket," which Michael Noonan, finance minister, waxed eloquent about in Paris in March 2012. Despite net emigration which is expected to exceed 30,000 again this year, unemployment will remain high for years to come;
• During the boom period 2001-2007, there was no net jobs growth in the FDI and indigenous exporting sectors:
• Exports are important in a small economy but even though the headline value has almost doubled since 2000, Irish full-time employment in the internationally tradeable goods and services sectors (foreign and indigenous) at the end of 2012 was at about 292,000 compared with 315,000 in 2000. The drop of 23,000 in the 13-year period coincided with a growth of the workforce (including the unemployed) by 364,000   
• FDI has peaked and while the permanent publicity campaign of Richard Bruton, enterprise and jobs minister, gives the impression of lots of action, a 333-point Action Plan for Jobs is more akin to a national ideas competition than a jobs strategy;
• In 2012, IDA Ireland said net job creation was 6,500 -- the best year since 2002 -- and the requirements of many of the jobs means that Ireland is subsidising foreign hiring. More than half of the employment in companies such as Apple and Google are of foreign nationals with various language skills;
• This year 2013 was the one when Ireland was to be recognised as a "world class knowledge economy" and the failure has given way to a new vision: "Ireland in 2020 is the best country in the world for scientific research excellence and impact." The multi-billion aspiration that was set in 2006 is very important with a serious jobs crisis in need of solutions. However, the delusional flagship enterprise policy that commercialisation of university research could become a jobs engine, illustrates a dysfunctional system where the fact that patent applications at the Irish Patents Office had dipped to a 30-year low in 2011, evoked no official response. Neither was the Oireachtas interested in the cost of €23bn in public science spending in a decade or the black hole at the centre of enterprise policy when high unemployment will be both a drag on the economy and a human tragedy, for years to come. The Irish Times which has a science editor, also ignored the issue.
• Where would this knowledge economy materialise from? In 2011, only 25% of FDI companies in Ireland spent more than  €100,000 on Research & Development;
• About 50,000 direct workers are responsible for almost 60% of headline exports and if the headline annual value of exports was discounted for profit and revenue shifting by foreign firms, indigenous exports would only account for 20% of the adjusted total;
• The indigenous export economy has performed poorly since the 1990s despite corporate and employer social security rates being among the lowest in Europe and no requirement to provide employees with an occupational pension; a large number of public supports, and current hourly wage costs at 78% of Denmark's level.
• About 7% of local SMEs (small and medium size enterprises with employee numbers up to 249) export and the European Commission says there are approximately 20 SMEs per 1000 inhabitants in Ireland, which corresponds to only half of the EU average. In Denmark there are approximately 37 SMEs per 1000 inhabitants and they have a high level of internationalisation.
• Only 3% of Irish SMEs are active in manufacturing, whereas the equivalent figure for the EU is 10%. Besides, the old-fashioned Irish apprenticeship system is a shambles with Ireland having 10 apprentices per 1,000 employed compared with Germany at 39, Switzerland at 44 and Denmark at 27.
• Recent data shows that the typical Irish farmer is overwhelmingly dependent on the EU farm welfare program, known as the Common Agricultural Policy -- now in its 41st year for Ireland; there are more Irish farmers over 80 years of age than under 35;
• In the indigenous sector, Elan, the most valuable Irish public company in 2001, once the world's 20th-largest drug company with worldwide employment of over 1,700 in 2006, is in 2013 a shrunken shell operation.

A positive aspect of the end of massive tax avoidance would also be an end to bragging material for ministers to weave fairytales. This would expose the stark challenges ahead in the real economy.

Ireland's confusing FDI data in age of spin

Finfacts v Irish Status Quo: Corporate tax and property bubble taboos

Confronted with accusations that Apple aggressively avoids US taxes, CEO Tim Cook insisted that the company pays "every single dollar" it owes, while Senator Carl Levin said Apple diverts most of its profits to Ireland to sidestep its tax bill:

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