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News : Irish Economy Last Updated: Oct 7, 2013 - 9:45 AM

Irish Government says 'no apologies' for corporate tax avoidance in Ireland
By Michael Hennigan, Finfacts founder and editor
Oct 4, 2013 - 5:50 AM

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'No apologies' for corporate tax avoidance in Ireland was the message again from the Irish Government this week via Richard Bruton, enterprise minister, while the Government at least publicly still hopes that other European countries will refund Ireland for some or all of the €64bn that was spent on rescuing the failed banking system.

This highlights the problem of resolving the financial crisis in Europe: solidarity is often a one-way street -  - in effect for others.

Five years after the collapse of Lehman Brothers, the US investment bank, and the infamous Irish state bank guarantee, economists at the Central Bank showed that in 2007, Germany was the source of 1%, or €1bn, of total foreign funding for the Irish bank system, according to the research, which is based on figures from the Bank of International Settlements.

In effect the common refrain in Ireland that Germany was obliged to cover the costs of the bank crash because German banks foolishly lent to us, was debunked.     

Nevertheless, we still expect the money.

On Monday we reported that Google diverted 41% of its global revenues to Ireland in 2012.

The Financial Times reported the Google story including underbooking of British sales in the UK: It said:

[Richard Bruton, Ireland’s business minister, said on Monday he was not concerned that the latest accounts filed by Google would turn the spotlight on Ireland’s role in multinational tax avoidance.

“The Irish tax regime is a statute based, transparent and clear system,” he said. “Ireland remains and will make no apologies for seeking to be competitive in this area.”]

Minister Bruton didn't directly refer to tax avoidance but he knows the story and being "competitive in this area' is consistent with Google saying in respect of its foreign income in 2012 of $8.1bn: "Substantially all of the income from foreign operations was earned by an Irish subsidiary" - - Google Ireland Holdings, the Irish-registered non-tax resident company located in Bermuda. It is a letter box company located at the Church Street, Hamilton offices of Conyers Dill & Pearlman, a company that provides services to offshore clients.

So Google's provision of  €17m in corporate tax in 2012 to Ireland on the foreign net income of $8.1bn, gave an effective tax rate of 0.21%.

The Irish Government also has a position of publicly supporting the ongoing work of  the Organisation for Economic Co-operation and Development (OECD) in developing proposals to reduce international corporate tax avoidance.

The director of the Centre for Tax Policy at the OECD said last June 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."

Google's overall foreign tax rate in 2012 was 4.4%.

The minister in his response on the Google Ireland situation, was in effect saying that it's fine with him that end-user sales made in Madrid or Athens are booked in Dublin -- even though Ireland gains little from the tax avoidance. Google minimised net income in Ireland to 0.8% of sales while Google Inc.'s net income ratio ex-Motorola was 30%.

On Tuesday, Wolfgang Schäuble, German finance minister, said that a European banking union is on course to become a pillar of the EU but he warned: "it emphatically is not and cannot be a mechanism to redistribute the burden of yesterday’s crisis among its participants." He added that whatever legacy issues come to light now will have to be tackled nationally and the backstop of the European Stability Mechanism (ESM), the rescue fund, would only come into play in "extreme circumstances."

On Wednesday, the Central Bank of Ireland published data from the recently expanded Residential Mortgage Arrears Statistics, which showed that mortgages to the value of over €9bn have been in arrears for 2 years or more.

With 50% of SME loans impaired, the slow resolution of the mortgage arrears crisis, coupled with bank stress tests in 2014, will likely result in a need for further bank capital.

Hello Europe!

On Thursday, it was fairytale time.

We have already a situation where Google's revenue rise in Ireland of 25% in 2012 and Microsoft's rise by 37% in the year to June 30, 2012,  is giving a fake boost to GDP (gross domestic product) while about €40bn of the total services exports in 2012 of €92bn, were in the real world, effectively a fantasy or fake.

So in Dublin, yesterday Richard Bruton launched a report by the American Chamber of Commerce in Ireland on the business relationship between the two countries.

It was a surreal situation where audacious claims were made but the real story was taboo.

The report reveals that US firms invested more capital in Ireland over the five-year period starting in 2008 and ending in 2012, than in the previous 58 years combined.

"Perhaps of even greater significance, that level of investment was roughly 14 times larger than US investment in China over the same period," Peter Keegan, president of the chamber said.

He added: “There has been $129.5bn investment in Ireland by US firms over the past five years and the stock of US investment in Ireland is now more than $200bn for the first time. Corporate America’s FDI stock in Ireland is now equal to the combined stock in France and Germany and it’s nearly 20% larger than the aggregate US stock in the four BRIC nations of Brazil, Russia, India and China.”

The Reality Check: impressive claims but the reason for these selective large figures is massive corporate tax avoidance and cash that is technically hoarded overseas is treated as an investment inflow!

Mainstream media please copy!!

IDA Ireland data shows that only 3,300 net full-time permanent jobs were created at its American client firms in the 2008-2012 period.

The following is not in the chamber's report:

In 2010, according to US Bureau of Economic Analysis data, 98,500 Irish workers accounted for more sales than 598,000 in Germany ($324bn compared with $317bn) and German majority affiliates of US firms could only manage a net income/revenue ratio of 3% compared with 30% in Ireland.

The UK's 1.2m workers in US affiliates produced revenues of $682bn and net income of $87bn. Profitability per Irish worker of $970,000 compares with $72,500 in the UK.

Revenue per Irish employee in 2010 was $3.2m.

In the real world in Ireland in September, there were 500,000 people on the Live Register and in publicly-funded job activation programmes (86,000).

SEE Finfacts articles:

Top 5 US tech firms held $515bn in cash at end June 2013 - - over $100bn of Apple's $147bn cash hoard is estimated to be 'overseas' (even though part of it is in banks in the US, according to the US Senate Permanent Subcommitte on Investigations last May)

US Chamber's investment data into Ireland misleading; 3,300 jobs added since 2007

US company profits per Irish employee at $970,000; Tax paid in Ireland at $25,000

Ireland's confusing FDI data in age of spin (deals with 2011 data)

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