Corporate Tax Reform: The OECD (Organisation for Economic Co-operation and
Development) on Monday published a draft document for discussion as part of its
Base Erosion and Profit Shifting (BEPS Action Plan) project that it has
undertaken at the request of the G-20 (the group of twenty that comprises the 19
leading developed and emerging economies in the world) to develop new
international tax rules to counter massive corporate tax avoidance. The document
shows that Ireland is just behind India as a top global exporter of ICT
(information, communications, telecommunications) services.
The chart above from the Paris-based think-tank for 34 mainly developed
country governments including Ireland, shows the huge growth in both India and
Ireland since 2000. However, the key distinction is that India's ICT exports are
home-produced while Ireland's mainly reflect corporate tax avoidance.
BEPS Action 1: Address the tax challenges of the digital economy[pdf] says:
Structures aimed at artificially shifting profits to locations where they are
taxed at more favourable rates, or not taxed at all, will be rendered
ineffective by ongoing work in the context of the BEPS Project. At the same time, the work on BEPS will increase transparency
between taxpayers and tax administrations and among tax administrations themselves. Risk assessment
processes at the level of the competent tax administration will be enhanced by measures such as the mandatory
disclosure of aggressive tax planning arrangements and uniform transfer pricing documentation
requirements, coupled with a template for country-by-country reporting. The comprehensiveness of the BEPS
Action Plan will ensure that, once the different measures are implemented in a coordinated manner,
taxation is more aligned with where economic activities takes place. This will restore taxing rights at the
level of both the market jurisdiction and the jurisdiction of the ultimate parent company, with the aim
to put an end to the phenomenon of so-called stateless income."
The focus of the document is on the rise of the digital economy and the
opportunities for avoiding tax;
the ability of a company to have a significant digital presence in the economy
of another country without being liable to taxation due to the lack of nexus
under current international rules, the attribution of value created from the
generation of marketable location-relevant data through the use of digital
products and services; excessive cross-border payments to related parties
in low tax jurisdictions that can erode the tax base where the services are
sold, and so on. of the countries from which such payments are made.
Avoiding payment of VAT is also an issue besides tax on profits.
The plan is to "restore taxation" to where digital
companies make their sales and base their headquarters.
The report says "the fact that it is possible to generate a large quantity
of sales without a taxable presence should not be understated...and it
raises questions about whether the current rules are fit for purpose in the
digital economy. These questions relate in particular to the
definition of permanent establishment for treaty purposes, and the related
profit attribution rules. It had already been recognised in the past that
the concept of permanent establishment referred not only to a substantial
physical presence in the country concerned, but also to situations where the
non-resident carried on business in the country concerned via a dependent
agent (hence the rules contained in paragraphs 5 and 6 of Article 5 of the
The OECD proposes
changing the rules on determining whether a company has a taxable presence
including instances where a company had “fully dematerialised digital
activities.” It also highlights the role played by intellectual property in digital
companies saying under current rules, the legal ownership of intangible assets
can easily be separated by the activities that led to their development.
The reports says that over the last decade, a
number of OECD and non-OECD countries have introduced intangible regimes which
provide for a preferential tax treatment for certain income arising from the
exploitation of IP (intellectual property), generally through a 50 to 80%
deduction or exemption of qualified IP income.
The OECD says that under existing tax rules, the
rights to intangible assets can often be easily assigned and transferred among
associated enterprises, with the result that the legal ownership of the assets
may be separated from the activities that resulted in the development of those
It says it has consulted on planned changes to
rules which will
drastically reduce the profits that can be attributed to countries where there
were no real activity, other than the legal ownership of intellectual property.
This will spell end the infamous 'Dutch
Irish Dutch Sandwich' scheme.
On Monday, Chartered Accountants Ireland(CAI), in common with the Irish Government's
failed effort to change the subject (effective tax rate 11.9% for all
companies; statute based transparent system; not a tax haven and so on), avoided
addressing the focus of the OECD report: the digital
The CAI said
multinationals would be subject to corporate tax at the point of sale rather
than where products are manufactured, which would favour big
economies with large consumer markets to the detriment of smaller countries.
“These proposals, which are a key element of a larger project to revise the way
multinational companies are taxed, would fundamentally change the business model
for companies based in Ireland,” said Brian Keegan, CAI tax director.
“These proposals would move company profits away from where value is created, in
countries like Ireland, to locations where products are sold - - principally the
major European countries.”
This would be akin to taxing our agriculture exports where they are sold, rather
than where they are grown, he added.
This is quite a stretch from companies like
Apple, Google, Microsoft, Facebook booking big chunks of their global revenues
either through resident companies in Ireland or offshore Irish companies that
are mainly used for tax avoidance.
Finfacts: Right on property bubble & corporate tax avoidance
|This is another key moment for the
Irish establishment, when reality dawns that facilitating massive
corporate tax avoidance while also having a low headline rate of
12.5%, could tarnish the attractive FDI (foreign direct investment)
1) Given the
extent of the tax abuse through the use of Irish offshore companies,
that were usually based in West Atlantic island tax havens where
there were no corporate taxes, there was always a risk that the US
Congress would apply a minimum foreign tax greater than the Irish
2) The banker of an Irish veto on
European Union tax harmonisation lulled policy makers in
Dublin into believing that they could see off EU efforts to curb
corporate tax avoidance.
As with the property bubble, the Rip
Van Winkles in Dublin have awakened to a new reality.
Finfacts has been
the accelerating corporate tax avoidance for a decade.
Again, as with the property bubble,
dissent is easily drowned out when the political leadership, senior
civil servants, enterprise agencies, mainstream media, economists
and vested interest groups such as Ibec and Chartered Accounts
Ireland, tacitly or otherwise deem departures from the received
wisdom as "talking down the economy."
This tune has only
changed since corporate tax avoidance became a big international
For many years, rising services
exports were acclaimed as reflecting a "move up the value chain"
when the increase mainly reflected tax avoidance.
Even today, reports on the Irish
economy from the Government, the Central Bank, the ESRI and some
economists, suggest that rising services reflect increasing
competitiveness not virtual transactions unrelated to activities in
The Department of Finance in
a report last month [pdf; page 12] claimed: "Continued
competitiveness boost through reduction in unit labour costs with a
21% relative improvement forecast against the Eurozone average" in
This is a fantasy.
Another report from
the Irish Government in February said
Ireland is a strong
performer in services exports, which grew by 11% in 2012 and account
for 50% of total Irish exports. This reflects the growth in ICT and
e-business sectors with a number of Irish services companies and
large foreign-owned multinationals operating and exporting from
Ireland. Ireland is also home to the service operations of many
manufacturing firms as well as financial services, leasing and
computer services firms. Some important services sectors within the
Irish economy include:
- Computer Services: accounting for 40% of total
services exports in 2012, realising a 49% growth over a five
noted that this is a classic example of Irish political spin and
fantasy in policy making.
The rise in computer
services exports is overwhelmingly related to the booking for
tax avoidance purposes of
big chunks of global revenues in Ireland by
companies such as Microsoft, Google and Facebook. Were 2,200 Google
employees in Dublin responsible for over 40% of Google's global
revenues in 2012?
Irish Medium-Term Economic Strategy 2014-2020:
Exports to plunge by €50bn - Parts 1-8
Irish Corporate Tax 2014: How official spin and
distortion works - in short-term
Civil servants are required to produce
propaganda material and last year Prof
Frank Barry in
a paper, 'Politicians,
the Bureaucracy and Economic Policymaking over Two Crises: the 1950s
and Today' [pdf], compared the disastrous Irish policy making of
the Lilliputians of recent times with the times of giants like TK
Whitaker, who was appointed secretary of the Department of Finance
-- Michael Hennigan
Selection of Finfacts tax reports 2013/14:
US company profits per Irish
employee at $970,000; Tax paid in Ireland at $25,000
Corporate Tax 2014: Apple's massive tax avoidance revealed in Ireland and
Corporate Tax 2014: White House and Congress to publish US reform proposals
Corporate Tax 2014: US
proposal of 17% rate for foreign profits
Irish Corporate Tax 2014: How official spin and distortion works - in short-term
Irish Corporate Tax 2014: Noonan signalls publicity offensive on effective rate
Corporate Tax 2014: Obama running with the hare and hunting with the hounds
Corporate Tax 2014: Yahoo! joins “Double Irish Dutch Sandwich” club; IDA Ireland
wants more members
Corporate Tax: Kenny reassures Facebook but
Ireland's rate is too high
Foreign government requests Bermuda to investigate Microsoft's Irish-linked
G-20 Australian presidency focuses on tax
"leaking bucket"; Ireland still in denial?
Corporate tax reform and the
biggest tech tax havens
Ireland's new International
Tax Charter: More political kabuki
Ireland's tax man for Silicon
Corporate Tax 2014: UK's revenues plunge; France considers reform