| Pascal Saint-Amans, director of the Centre for Tax Policy at the Organisation for Economic Co-operation and Development (OECD), is responsible for devising new rules on international corporate tax for the G-20 group of leading developed and emerging economies. The G-20 said this month that it would put forward recommendations to set up a system so that profits are taxed "where economic activities deriving the profits are performed and where value is created." |
Corporate Tax: With Enda Kenny, other ministers,
and the IDA Ireland chief, misleadingly suggesting that the Irish effective rate of
tax (actual tax paid, to be paid or accrued for an accounting period as a ratio
of net income), for a foreign multinational based in Ireland, is typically close
to the headline corporate tax rate of 12.5%, The Irish Times weighs in today with a
survey reporting that the top
1,000 companies operating in Ireland, are apparently generously even paying more than the headline
rate. However, the findings have no relevance whatsoever to the debate on global
corporate tax avoidance and Ireland's involvement in it.
This week we set out why the Irish official line
on the effective rate is misleading as the standard company used in an
international survey that is cited, is an SME pottery maker that has 60
employees, sells all it output via retail outlet (no exports) and has
losses forward from its first year of operations. It's a bit different from say
Google or Microsoft, surely? I'll come back to that term 'surely'!
We also reported that from financial data
supplied by US companies to the US government, in respect of majority affiliates
in Ireland, coupled with information provided by Barry O'Leary, IDA Ireland
chief executive, on tax paid per employee in Ireland, the effective tax rate
in 2010 was 2.5%.
US company profits per Irish employee at $970,000; Tax paid in Ireland at
reports today in The Irish Times that in an analysis of the tax practices of
Ireland’s largest companies, as determined by the Top 1,000 database, it was
found that companies - - both foreign and indigenous - - are paying corporation
tax on their profits at an average effective rate of 15.5%.
Combined, Ireland’s Top 1,000 companies paid taxes of some € 2 billion in their
most recent financial year, accounting for about 50 per cent of total
corporation tax revenues in 2012.
The survey found that Dubai-headquartered
international oil and gas exploration group Dragon Oil was the largest taxpayer
in Ireland, with a tax contribution of €161m in 2012, followed by Microsoft
(€132m) and CRH (€120m), which is termed Ireland’s largest company.
Reddan makes no reference in her piece to a
relevant point: there are currently two Corporation Tax rates in Ireland;
12.5% for trading income and 25% for passive (investment) and foreign income. An Irish
resident company which does not have a business in Ireland is taxed as if all
its income is foreign income and the rate applicable is 25%. Besides apart from
the units of foreign multinationals, the rest of the companies on the top 1,000
list, which have foreign operations, pay tax at several different rates in
As for CRH, it has about 1,500 from a payroll
of 75,000 worldwide. So what it reports in its consolidated accounts
reflects a cocktail of different rates including the 35% federal rate in the
United States, offset by various tax expenditures (allowances/ credits).
CRH says in its Annual Report 2012: "The
effective tax rate of 17.8% of pre-tax proﬁt was higher than 2011 (16%), reflecting
the mix of Group proﬁts by geographical region."
Has Dragon Oil exploration operations in
As for Microsoft, it reported net income in
Ireland in 2011/12 of €1bn, on revenues of €13.7bn, giving an effective rate of
13.2%. However, this is simply a fiction.
Microsoft Inc. reported revenues of $73bn and net
income of $17bn in fiscal 2012; it allocated 24% of the global revenues to
Ireland, $17.8bn, which resulted in a net income of $1.3bn.
So Microsoft Inc. had a net income/ revenues
ratio of 23% and Microsoft Ireland's ratio was 7.3%, thanks to intercompany
charges, which were likely used to transfer profits to a jurisdiction with a
lower tax rate.
Microsoft's fiscal year (FY) 2012 ended on June
30, 2012 and in September 2012, at risk of serious legal sanction if it gave
misleading information, the software giant told US Senate investigators that in FY 2011, the Irish, Singapore and Puerto Rican companies earned
approximately $15.4bn 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.
Google reported revenue in Ireland in 2011 at
€12.4bn and after a charge of €9bn in 'administrative expenses' it had a net
income of €24m; payroll costs for 1,900 people in Ireland amounted to €218m.
The tax charge on trading activities was €3m;
total tax charged at €22.2m included foreign withholding tax.
The trading tax gives a perfect effective rate
of 12.5%, corresponding with the headline rate of 12.5% but the profit was
transferred out within the 'administrative expenses.'
...and back to 'surely.'
The official line is to avoid commenting on
avoidance ("we can't discuss the affairs of individual companies") and keep
harping on talking points whether they are valid or not.
This Irish Times
op-ed in June is an example of a vested interest, in this case Conor
O'Brien, the head of tax at KPMG, a Big 4 accounting firm, putting stress on the
positive aspects of the tax regime but issues such as Google booking UK, German,
French etc. sales in Dublin; Amazon treating the UK as a distribution depot for
its office in Luxembourg; Starbucks paying no tax in the UK through the use of
intercompany charges, are ignored, despite being the key factors in pushing
political leaders to address massive tax avoidance.
One key problem is that few journalists or politicains can forensically challenge these defenders of the status quo.
The Irish Examiner
reported last week that Gary Tobin of the Department of Finance told an
Oireachtas committe that it was possible to close down the facility of Irish
non-resident tax companies "but it would have a marginal impact on global tax
avoidance by multinationals."
It had been retained in company legislation in 1999 at
the request of US multinationals.
Wonder how would Gary Tobin or any other official
know that ending the facility would have a marginal effect?
Finally, this Irish Times report will
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