|Enda Kenny, taoiseach/ prime minister, meets Tim Cook, Apple's CEO, in Cork, January 31, 2014 |
Irish corporate tax
policy like the property bubble has been driven by short-term interests
with until recent times, the support of the mainstream media.
After almost two years of floundering in response to surprise global
moves to reform international business tax rules, it took remarks by President
Obama last Thursday for the Government to make an explicit statement on so-called
tax inversions where US companies change their tax residency to
low-tax countries such as Ireland, the UK, the Netherlands and Switzerland.
an interview on CNBC, the president said businesses who relocate their
headquarters to countries with lower tax rates, such as Ireland, are "gaming the
"Keep in mind that what we're trying to do is to say that if you simply acquire
a small company in Ireland or some other country to take advantage of the low
tax rate, you start saying we're now magically an Irish company, despite the
fact that you may only have 100 employees there," Obama said. "And you've got
10,000 employees in the United States. You're just gaming the system."
Richard Bruton, enterprise minister, said
on Friday: "The Government, my Department or our enterprise agencies do not
promote or encourage companies to engage in any practices which bring little or
no substance, in terms of jobs or economic activity, to Ireland. The ‘tax
inversion’ practices referred to in recent days and weeks are not the product of
any features of our tax system, we are not in favour of them and do not promote
or encourage them. Ireland features in only a small minority of these cases
worldwide, which also relate to a range of other developed countries."
In a broadcast interview with RTÉ, Barry O'Leary,
IDA Ireland chief executive, made a distinction between companies
that have operations of substance in Ireland already and ones that haven't,
suggesting that he still welcomes inversions.
The inward investment agency chief said some companies that have "inverted" into Ireland have well over 1,000
people in Ireland that take care of the whole European market from Ireland.
However, he added that the ones that have "very little substance" are causing the
reputational problem, when they come to Ireland to avail of the tax rate without
putting a significant presence on the ground.
While it is up to the US Congress to reform its corporate tax laws, having a
company like Medtronic, the medical device manufacturer, with a 77,000 payroll
as an Irish company following the completion of its acquisition of Covidien, a US company
that moved its domicile to Ireland in 2007, messes up the Irish national accounts and
several other metrics.
Tax Inversions 600,000+ staff: Kenny, Noonan met with top US corporate lawyers
We are helpless is the usual
refrain but tax inversions had been welcome until they became an issue of
controversy in the US.
In early May
Brian Cowen, then finance minister and days before he became
taoiseach, according to The Daily Telegraph stressed that the country
would not encourage "brass plate" operations, and wanted to see "real substance
in investment in Ireland" by those seeking to take advantage of its benign
The newspaper also reported that IDA Ireland was actively pitching deals to UK companies
to switch their tax domiciles to Ireland
Unrelated to tax inversions, last March, King Digital Entertainment Plc, the
maker of the popular Candy Crush Saga smartphone video game, had an IPO (initial
public offering) on the New York Exchange.
The Irish holding company is a brass plate operation based at the Dublin
offices of William Fry, a law firm, and in its US regulatory filing its phone
contact was a London number.
This virtual company with a market cap of $5.8bn last Friday is one of
Ireland's biggest companies by value.
“The Irish tax rate on corporate business is very clear - - it’s 12.5% - - we
don’t have any brass plate companies like others do have. The tax rate in
Ireland is what it says on the tin,” Brendan Howlin, public expenditure
a month before the King IPO.
This is the surreal world of Irish policy making.
Government and misleading data
Ministers brag about rising services exports as reflecting success of
economy when it's fake output/exports of €45bn or almost half annual services
exports, resulting from
Double Irish Dutch Sandwich schemes.
Just Google, Microsoft and Facebook alone, accounted
for €35.5bn or 39% of Ireland's services exports in 2013.
As damning is the 2012 "EU
Industrial R&D Scoreboard" which noted:
companies based in Ireland contributed 68% of that country's R&D investment:
Seagate Technology (15.0%), Covidien (23.9%) and Accenture (31.2%)."
These 3 companies are only
Irish because they have located their head offices in Ireland. Seagate spent
$1bn on R&D in 2011 but not in Ireland. The figures in brackets are in respect
of annual growth.
The Department of Jobs,
Enterprise and Innovation was apparently glad to have the opportunity to mislead
the public by publishing a report that suggested policy success when the reality
was the opposite -- 'Ireland
ranks in top 10 EU countries for R&D investment - EU Commission.' - - this
was republished on the Department's website but was deleted after we highlighted
the issue in August 2013.
We need to also get our jobs
data straight when CSO data can mean to different parts of the Government
either 47,000 or 70,000 jobs were added in an 18-month period:
Finfacts: Irish Economy: Bruton and politics of jobs numbers; How to add 50%
Property bubble redux
It was almost a taboo to
question the corporate tax policy until the issue of avoidance resulted in international moves for reform in
the past 2 years.
Conor O'Brien, head of tax at KPMG Ireland, the Big
4 accounting firm, told an Oireachtas committee this year:
We shot ourselves in the foot. A great deal of the international press
coverage arose as a result of international news agencies picking up on reports
or articles by Irish persons,"
The Consultative Committee of Accountancy Bodies – Ireland(the
representative committee for the main accountancy bodies in Ireland) after their
disastrous support of the status quo during the property bubble, when "lending
as a fraction of GNP increased from 60% in 1997, to over 200% in 2008, twice the
level of other industrialized economies" commented in a submission to the
Department of Finance's tax reform consultation:
Certain of our academics and other members of the commentariat, widely
reported by certain of our news agencies, make inaccurate and damaging claims
with regard to the way Ireland conducts its tax affairs. These claims must be
discounted. Published explanations, for example those published by your
Department concerning Ireland’s effective Corporation tax rates, dispense with
such claims, which in any event have little traction with the fair-minded in the
business community [ ] Harmful tax practices are simply not a feature of the
Irish tax landscape."
What's all the fuss about is the cri de coeur
from the parallel universe!
I wrote in June 2007:
It's becoming common to lambaste referred to
'commentators' for 'talking-down' the Irish economy even though the legitimate
issues that are being highlighted are seldom contested."
Self-interest and short-term interest ruled when
the economy was on fire and it does now.
The Government doesn't know how many offshore
Irish letter-box companies exist and in the surreal status quo world in Ireland
they are not Ireland's responsibility anyway!
We are helpless!
decided that its main Irish company should stop paying taxes from 2006 and
its Irish companies should become stateless.
We are helpless!
The knee-jerk reaction is to drown out dissenters
and possibly still wonder
don't commit suicide.
In the print media in particular, the so-called
"people of standing" - - from lobby groups and big name firms - - still hold sway and last Thursday
a flawed report from an accountancy firm on FDI (foreign direct investment)
in Ireland that was launched by the enterprise minister but lacked credible
data to support bold claims, won a headline in The Irish Examiner: 'Ireland
still tops for foreign investment' - - with no data to support the claim.
This is 2014!
What does 'tops' mean?
Google books its UK revenues in Ireland but
it is in the UK not Ireland where significant research is being done and in Ireland where
the majority of the staff, mostly from the European mainland, are in sales and administration roles.
Less than 30% of FDI firms do even minimal
research in Ireland.
isn't there debate on Ireland's dumb enterprise policy?
We need a credible long-term strategy not fatuous
aspirations where real world challenges are ignored.
Read the Finfacts submission to the Department of
Finance on corporate tax policy:
Corporation Tax Reform: Irish Government should reject pleadings of
link to 17-page pdf submission