The announcement of Ireland's new International Tax Charter by Michael
Noonan, finance minister, in his Budget speech on Tuesday is what Americans
would call political kabuki, evoking a classical Japanese dance-drama. In the
vernacular, it merits being termed a fake while some of the claims made in the
accompanying document could be termed economical with the truth for sensitive
folk or lies to people who inhabit a world of common-sense.
The only direct legislative measure Noonan promised on Tuesday was to address
the issue of "stateless" non-tax resident Irish companies that had been
highlighted in a report on Apple last May by the US Senate panel, the Permanent
Subcommittee on Investigations.
report [pdf] said
Apple Operations International had not filed an income tax return in
either Ireland or the US, or any other country, for the past five years. From
2009 to 2012, it reported income totaling $30bn.
A second Irish subsidiary claiming not to be a tax resident anywhere is Apple
Sales International which, from 2009 to 2012, had sales revenue totaling $74bn.
The company appears to have paid taxes on only a tiny fraction of that income,
resulting, for example, in an effective 2011 tax rate of only five hundreds of
The Senate panel said that in addition to creating non-tax resident affiliates,
Apple Inc. had utilised US tax loopholes to avoid US taxes on $44bn in otherwise
taxable offshore income over the past four years, or about $10bn in tax
avoidance per year.
Senator Carl Levin, Democrat of Michigan, and John McCain, Republican
of Arizona, chairman and ranking
member, respectively, of the Permanent Subcommittee on Investigations, released
the following statement Tuesday on Ireland’s announcement.
Ireland’s promise to reform its tax rules to stop multinationals from using
Irish subsidiaries to escape or defer paying taxes anywhere in the world is
encouraging. Important questions do remain, however, including whether the new
rules will continue to allow Irish subsidiaries to dodge taxes by, for example,
excluding substantial income from the 12% Irish tax rate, calculating taxable
income in ways that produce a lower effective tax rate, or simply declaring tax
residency in a tax haven with no corporate tax. Hopefully, the answers will
demonstrate that Ireland is ready to close the door on these egregious corporate
tax abuses enabling multinational tax avoidance.”
While the current work being done by the Organisation for Economic
Co-operation and Development (OECD) to develop proposals to update
international corporate tax law, at the request of the G-20 leading developed
and emerging economies, is more important than national initiatives,
the Dutch who facilitate corporate tax haven activities that are much more
extensive than Ireland's, announced last month measures to restrict the
Netherlands' 23,000 foreign letter-box companies and revise tax treaties with 23
poor countries to allow the incorporation of anti-abuse clauses where necessary.
In Dublin, the strategy is to play for time and obfuscate because there is a
reality that the Government will not officially acknowledge: corporate tax avoidance is entwined in the fabric of
the national accounts.
With merchandise exports under stress because of the expiry of patents on
American blockbuster drugs that are manufactured in Ireland, a surge in services
exports in recent times has been hailed as reflecting increased competitiveness,
while providing GDP (gross domestic product) with the only material boost. The
latter, which includes the profits of the dominant foreign-owned sector, is the
key metric for European Union targets.
In 2012, just Google and Microsoft accounted for a third of record services
exports, because of tax related revenue diversions from other markets - - it's a
bit of a stretch to classify Google sales in Australia and Hong Kong as Irish
exports but that is what's happening.
So about 45% of the value of services exports or €40bn (25% of GDP) is
virtual or effectively fake and to wipe this out overnight would be
embarrassing. It would also undermine the argument about competitiveness as
national output would have to be downsized with a resultant rise in unit labour
In the debate on tax avoidance, the Government would like to keep the focus
on defence of the headline 12.5% corporate tax rate but that is not under
attack, despite some confusion overseas.
The Dutch have a 25% corporate tax rate and lots of tax avoidance and
Ministerial mantras that Ireland's tax system is transparent and the
effective corporate tax rate is close to the headline rate, are debunked here:
US company profits per Irish employee at $970,000; Tax paid in Ireland at
The Department of Finance's 'Ireland's
International Tax Strategy' [pdf] document, which was published on Tuesday
contains some gems and what would commonly be understood as lies:
Ireland has been active in efforts at European and OECD level to develop a
response to aggressive tax planning.
Aggressive tax planning by companies is a major issue for legislators across
the world and it needs to be addressed. Ireland is very much involved in the
process of addressing the issue
Ireland’s corporate tax system is open, transparent (when did Apple last
file company accounts in Ireland? 2005?), and all the rules are clearly set
down in our national law.
A General Anti-Avoidance Rule (GAAR) has been in place since 1989 – the
European Commission is now calling for all Member States to introduce such
domestic legislation – and Irish transfer pricing rules are based on the
OECD arm’s length standard.
Notwithstanding the evidence which shows that Ireland only engages in fair
tax competition and complies with all relevant international rules, some company
structures have been criticised as examples of legal but aggressive tax-planning
by international companies.
A statute-based 25% rate of corporate tax applies to investment / non-trading
income to guard against ‘brass-plate’ operations with low substance and to
reinforce the role of Ireland’s corporation tax regime in fostering active,
substantial, trading operations here."
On the last point, in recent times, the US Eaton Corporation with a payroll
of over 100,000 and only a small headquarters staff in Ireland, is availing of
the 12.5% rate.
A brass-plate is one thing and a brass-neck is another.
The bromides on helping developing countries must rank with
of Bono, the frontman of the Irish rock group U2, who last month
transparency from extractive companies operating in Africa, who were
likely using Dutch tax haven facilities just like U2!
Ireland’s new Policy for International Development commits to ensuring that
our Key Partner Countries emerge from their dependence on aid. Lasting
solutions to problems of poverty and hunger must be underpinned by
developing countries’ own ability to raise domestic revenue. We will therefore
undertake efforts to help developing countries increase their domestic
revenues in ways that are more efficient, fairer and better promote good
governance and equity.
We will do this by working both at an international level to combat illicit
financial flows and capital flight and at a national level to strengthen revenue
collection and management."
This is classic cant and a wise man named
Abraham Lincoln once said: "You
cannot escape the responsibility of tomorrow by evading it today."
The good news is that default Irish procrastination will not work
this time as the sands are already moving under the comfortable seats of
conservative policy makers.
Check out our
subscription service, Finfacts Premium
, at a low annual charge of €25