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Michael Noonan, Irish finance minister, arriving for Eurogroup meeting, Brussels, Feb 17, 2014.
Irish Corporate Tax 2014: The current Irish governance system has remained unchanged through boom
and bust and the addiction to political spin, distortion and sometimes lies,
works at least in the short term while in some cases it has an enduring impact.
To paraphrase Abraham Lincoln, America's 16th president, it's possible "to fool
some of the people all of time, and all of the people some of the time."
In recent years for example, corporate tax avoidance has provided rich material
on the Orwellian use of language for Irish political distortion with an
effective corporate tax rate (actual taxes paid as a ratio of reported net
earnings before tax) cited both internationally and domestically, knowing that
it was misleading, but useful.
In 2010, Nicolas Sarkozy, then French president, criticised the low
headline Irish corporate tax rate of 12.5% but Irish officials and the
mainstream media countered that the 'Paying Taxes 2010' [pdf] report, produced by PricewaterhouseCoopers (PwC) in association with a unit of
the World Bank, had calculated the Irish
rate at 11.9% compared with 8.2% for the comparable French rate.
The case study company has remained unchanged each year: a flowerpot
manufacturer and retailer. Its turnover is the same multiple of the income per
capita for each country. The company is 100% domestically-owned and has five
owners, all of whom are resident for tax purposes in the country and it neither
exports or imports.
“I briefed them on the Irish situation and particularly on the corporate tax
rate, and there was significant support for Ireland’s position,” Noonan told
reporters. “I was pointing out to them that, while our rate was 12.5%, we had
eliminated practically all allowances so our effective rate was over 11%,
whereas France, with a 32% nominal rate, had an effective rate of 8.1, the
research would show.”
This was an illiterate argument as France would have
had huge allowances for companies to cut its rate by a claimed 24%.
In the same month, in The Financial Times, Peter Sutherland, chairman of
Goldman Sachs International said: "...we should note that in a World
Bank-PwC Report it has been established that the actual rate of tax paid, for
example, in France is 8.2% and is even lower elsewhere."
What can be charitably assumed is that neither Noonan nor Sutherland had read the actual report.
The truth was that the flowerpot firm had no relevance
for the big foreign companies in Ireland that were involved in massive tax
A spokesperson for Christine Lagarde, then French finance minister,
told The Irish Times it was “inaccurate” to say that France had a lower
effective corporate tax rate than Ireland.
France as Irish officials were surely aware of, had a low headline rate of
15% for small companies.
This month, - - three years later- - The Irish Times gave front page prominence
to a story that undermined the well-used talking point of Enda Kenny,
taoiseach/ prime minister, that all companies operating in Ireland are
subject to the 12.5% headline tax rate and an effective rate of 11.9%.
Why was old news new news? Why could Kenny repeat his claim so often and not
be challenged when the evidence was a few clicks away? - - see last
On Monday in
Brussels, Michael Noonan, finance minister, provided another example of
spin when he reaffirmed a commitment to
cut the income tax burden in next October's budget to stimulate "job creation" and
he cited the 2011 cut in VAT to aid tourism as an example of a successful tax
cut -- the man with an entitlement to 3 guaranteed pensions as a minister, TD and
teacher, omitted the inconvenient detail that he hiked the levy on private
pensions in 2014, which was introduced in 2011 to seize €2bn to fund the cut in
the VAT rate; last Friday, Richard Bruton, enterprise minister, issued a
statement on 2013 goods exports and the following contains false claims:
Exports to key target countries of Brazil, India, Saudi Arabia and Russia also
rose in 2013 compared to 2012. These grew by 6% to €1.8bn and reflect the
investments in market development that have been made by the Department’s
enterprise agencies and especially Enterprise Ireland. Exports to Singapore grew
by 9% to €560 million. This reflects the importance of small Asian economies to
our overall export agenda and the increased attention being given to building
our presence across the wider Asian region and for which Singapore is a key
In 2013, exports to China fell while shipments to India remained at a decimal
point -- see page 6
About 90% of exports made by firms supported by Irish public enterprise
agencies, are made by foreign-owned firms in Ireland and 'Chemicals
(including pharmaceuticals) and related products' accounted for 57% of 2013
In emerging markets such as China, foreign firms account for 94 to 95% of Irish
exports and the Irish-owned units of such firms do not generally decide on the
destination of their outputs.
So Bruton claims all the increases in exports to the emerging markets cited
reflect jumps in exports by indigenous firms without citing any evidence for
On Monday, Richard Bruton and Eamon Gilmore, tánaiste/ deputy prime minister,
announced details of the Irish Government’s St. Patrick’s Day week of
international travel in mid-March "which will see 27 Ministers taking part in
over 100 business events and 80 high-level political meetings in 35 cities
across 23 countries."
The ministers also announced another 'scheme': "This new scheme, under
which companies can receive grant support of up to €150,000 to develop new
markets, is a very significant addition to the trade mission activity and the
wide range of supports which Enterprise Ireland already provides for exporting
companies. This scheme is aimed at companies that are investigating new markets
that demonstrate strong potential and will provide funding support to develop
marketing strategies to capitalise on these opportunities."
What works and what doesn't? Who knows or who cares?
Last year, the Organisation for Economic Co-Operation
and Development (OECD) advised the Irish Government to introduce sunset clauses
on innovation and enterprise supports. Surely a good thing to force some
Six months later, making job announcements for American firms looks a lot more
Spin works with the assistance of the constituency messenger boy/ girl system in Dáil Éireann
(the lower house of the Irish Parliament) and a docile mainstream media where
the taoiseach/ prime minister can go through a parliamentary term without being
subject to one forensic broadcast or print media interview, covering the full
gamut of government policy while ministers regard a five-minute so-called
door-step interview on the way into or exiting meetings, as accessibility.
Even where online media has been in the vanguard of pushing for change in the
sclerotic systems, for many years journalists in the mainstream media
while using the web to source information, in contrast
with mature markets such as the US, seldom cite these sources --
it's also uncommon in Ireland compared with the US for an Irish newspaper to
cite a rival newspaper as the original source of a report that it has used.
During the bubble, Bertie Ahern, then taoiseach / prime minister, was able to
get away with arguments about the housing market when annual private credit
growth was almost ten times annual inflation -- in fairness as we Irish say,
some of his arguments were not easy to zap in a sound bite as commercial
economists in particular conjured up positive scenarios to encourage the
gullible while pleasing their masters.
This is an example from April 2006,
the craziest year
of the Irish bubble:
I think you have to look at the asset. This is the question: if you are
borrowing 'x', if you sell the asset, if there's a bit of a downturn, will you
get 'x' back in return? That's the issue. At the moment, there doesn't seem to
be an indication [of difficulties].
"I mean quite frankly, if you had taken the advice a year ago you would have
lost a lot of money. Everybody said we're going to see a huge downturn in 2005
linking into 2006 - - they were entirely wrong.
"Really we should have an examination into why so many people got it so wrong.
My view is there's not a great problem. Really, the bad advice of last year
given by so many has maybe made some people make mistakes, that they should have
bought last year."
In recent times, Enda Kenny, Ahern's successor, has been able to counter
questions on Ireland's role in facilitating international corporate tax
avoidance, that also would not pass a pub-stool test.
In January 2013, Enda Kenny said on a panel at the World Economic Forum annual
meeting in Davos, which was chaired by Lionel Barber, FT editor, that
Ireland's effective corporate tax rate was 11.9%.
Finfacts said: "One claim was false and the other was very misleading."
We also raised the taboo subject of booking huge chunks of global revenues
diverted from other countries for tax avoidance purposes by companies such as
Microsoft, Google and Facebook that become virtual Irish services exports and
According to Michael Noonan, finance minister, these virtual exports
reflect improving "competitiveness."
On Tuesday, February 11, The Irish Times
reported the story that Jim Stewart,
a Trinity College academic, had produced a paper that undermined Kenny's
claim that the effective corporate tax rate was 11.9%.
Using BEA data for 2011, Stewart had calculated that
the effective rate for US
companies was 2.2%.
"He is wrong. The methodology for determining tax
differs from academic to academic," Kenny told CNBC.
"2.2% is not correct. The effective rate can range between 10% and 11.9," he
Individual journalists usually are not in command of
the facts to zap ministerial talking points, while at organisation level, there
is no excuse for repeatedly reporting bogus claims without fact checking.
Kenny conveniently chooses to ignore the Irish
mailbox companies in places like Bermuda and the Cayman Islands, which have
Unlimited status provided by Ireland to shield them from public scrutiny and are
used to receive tax-free transfers from Ireland using the "Dutch Irish Dutch
The tax paid by Google and Microsoft, on 2012
and 2011/2012 net income after multi-billion royalty charges results in
effective rates of 11% (€17m on €154m) and 13.2% (€132m on €1bn) respectively,
appearing to confirm the official line that Ireland’s effective rate of
corporate tax (actual tax paid as a ratio of net income) is close to the
headline rate of 12.5%. However, the net income in Ireland is minimised through
huge intercompany charges. See here
for the reality beyond the spin.
Through boom and bust, spin succeeds because as
David Begg, trade union leader and Central Bank board director for fifteen years,
suggested in 2010 that in the view of insiders like himself, attention
should be given to people of status or standing.
Irish PM defends country's corporate tax rate
WED 12 FEB 14 | 04:40 AM ET
Enda Kenny, Taoiseach of Ireland, said the country's corporate tax rate is "based in law" and "transparent," amid criticism that multinational companies are using Ireland as a tax haven.
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