From top: Minister for Finance Paschal Donohoe; Tony Groves

Ireland is a tax haven. This simple statement of fact causes the most ridiculous responses. We get told that we are talking down the country, that we’re not wearing the green jersey.

We even get the whopper, preferred by the Minister for Finance Pascahl Donohoe, that the recent OECD report confirmed we weren’t a tax haven.

Firstly, let’s deal with the facts.

A recent study of tax havens, €600 Billion and Counting: Why High-Tax Countries Let Tax Havens Flourish, put numbers on what is essentially an organised, tax compliant and totally legal, global larceny. And no, there’s no contradiction in that sentence.

The first key finding is that 45% of multinational company profits are artificially shifted to tax havens. Ireland, as you can see below is the worst legal offender. 45% of profits whisked away to tax havens; that’s like saying that you or I could put almost half of our monthly salary into a tax avoidance scheme.

The Global Corporate Tax revenue loss is estimated to be over €200 billion per annum, or 12% of Global Corporate Tax Revenue. To put that in context, the World Bank says that global foreign aid totaled €130 billion in 2016. So Multinational Companies shift nearly double the world’s total aid budget for tackling poverty into tax havens.

The next finding is a cracker; the main loser in tax revenue is the EU, with losses estimated to be above 20% of its taxable profits. Now, and here is where it gets mind-bending, the main beneficiaries of this legalised larceny are Ireland, the Netherlands and Luxembourg.

The 3-Tax-Haven-Amigos, not mentioned on the above graph, impose real effective tax rates of 2-3% on huge artificial bases and in doing so financially hamper the ability of the combined EU 27 countries to tackle various social crises. So definitively, Ireland is a tax haven.

That doesn’t mean that Minister Donohoe was wrong. He wasn’t, he was just being selective with the way he read the OECD report. The report that he was referencing was the OECD’s Tax Transparency Ratings and was dealing specifically with individual countries legal framework and legal implementation of their own tax laws.

Ireland was the only country of the 3-Tax-Haven-Amigos to achieve a rating of compliant. But rather than it confirming us as not a tax haven, what the OECD report actually confirmed is that we are the best tax haven. We have the most transparent tax avoidance structures in the world. It is, in sales-speak, our Unique Selling Point.

It starts and ends with transfer pricing. In simple terms: if Company A is operating in Germany but opens a small company Company B in Ireland which then assumes ownership of the intellectual property of Company A, then, even though Company A is producing and selling their product in Germany, the profits are taxable in Ireland via Company B.

This Transfer Pricing method, the study found, has resulted in high-tax countries stealing from each other, while letting tax havens flourish, in the name of free market competition. Companies like Apple, Google and Facebook have True Global Profits of totaling tens of billions, yet using the profit shifting are able to only show Observable Profits of hundred of millions.

This sounds like a good deal for Ireland and our other Amigos, right? Not really, no. The average profit for multinationals per employee in a non-haven is 34%. In Ireland it’s almost 200%. Simply put, Ireland gets one sixth the number of jobs equivalent to non-havens for the same money. See below:

There is a simple solution to this conundrum, something that could end transfer pricing overnight and see a more equitable re-balancing of both the tax take and ultimately the workforce: make the profits taxable where the jobs are.

So if Company A employs 10,000 people in Germany and 5,000 in Ireland then it can only “shift” 50% of its profits.This, I’d argue, is not something we should be afraid of. Rather than costing Ireland jobs, such a strategy should create more jobs. Remember, we are the most transparent tax haven in the world. Why wouldn’t the multinationals increase their workforces here if it meant increasing shareholder value?

So, yes, Ireland is a tax haven. That’s not up for debate any longer. The debate must now move on into how we make us the best little tax haven in the world in which to create jobs. A transparent low corporate tax, high job economy. It’s possible and it’s certainly a damned sight more ethical than what we are currently doing.

Tony Groves is the co-host of the Echo Chamber Podcast and blogs at EchoChamberPod
You can Subscribe to the Echo Chamber Podcast by clicking here for iTunes or here For SoundCloud,

51 thoughts on “Taxing Truths

  1. Steve

    Agreed tony , good suggestion , pro rata the tax due on employment breakdown .

    Tax haven status is a cancer. It weakens our moral authority on world, European and local politics. It may also affect the likes of France and Germany backing us up when the real crunch on NI Brexit comes.

    Reply
    1. Andy

      Seriously?

      Because an Amazon warehouse picker provides the same value-add as Amazon’s marketing or product development department?

      Reply
  2. Happy Molloy

    I think this reputation is one that Ireland would like to shake off at this stage, and we have closed the double Irish for example, but it will take a coordinated international effort.
    Avoidance is largely based around the payment of royalties and this is hard to quantify and control as to whether they are valid, on a small scale for example if not have a franchise you have license fees to pay, multinational tax avoidance is simply this on a massive scale.

    Interesting piece at the end regarding taxes being paid where the workers are located, haven’t seen that before.

    Of course ideally taxes would be paid where the product is sold, but this conflicts with freedom of establishment agreements, like Kerry group of Volkswagen being able to repatriate profits earned abroad.

    Overall Ireland is a convenient whipping boy for the world for what is a global issue that is a consequence of globalization. it will take a lot more than pointing the finger to solve. But pointing the finger does get votes…

    (not a troll)

    Reply
    1. Donal

      We may have closed the Double Irish but we opened the knowledge box or somesuch.
      It’s our policy to attract multinationals, we’ll keep our corporate tax low and we’ll let you skip taxes on loads of stuff, you just have to come here and open a call centre or two and we’ll think we’re all IT geniuses.
      I’m not going to suggest a solution (others mention a lack of public sector R&D money and historic failure to develop indigenous industry as causes) but to think that we will do anything that undermines the policy is absurd. It’s been a success in providing employment, and the stick would want to be very big to get us to stop. Chances of a very big stick being wielded by the international community working together on this issue are quite small if you ask me

      Reply
    2. Cian

      The more I think about the “taxes being paid where the workers are located” model the less I like it. (Note: I don’t think the current tax-haven works either and need to be changed).
      I think that countries are already benefiting from the employment, so don’t necessarily ‘deserve’ the taxation on profits. e.g. If I have 5,000 employees in a country they are all contributing to that country by employer tax, income tax and the by the 5,000 people just spending their salary.

      A simple example where the employee-based-tax is unfair:
      Company X is a US-founded social media company that targets the UK market. The company was founded in the USA and has 100 employees there. Software development was outsourced to India: 100 jobs there. Sales is outsources to Ireland: 100 jobs there.

      Say the company makes sales of 200m from the UK. This results in 100m profit. Where should they pay tax on profits? The UK where the money originated? Ireland where the Sales were booked? India where the software was developed? or the US where the IP lives?
      By the ‘number of employees’ the UK gets nothing, and the profit must split evenly between the other three countries.

      My gut says that the UK should get the majority of the tax on profits – since it was from money that originated in the UK.

      I think that the only solution will be that there is a global minimum tax-rate; so that a company simply can’t avoid tax. This could be done if enough countries banded together (e.g. all the ones that aren’t tax havens) and stopped any company from trading in their jurisdiction(s) unless they paid their taxes within the jurisdiction(s).

      Reply
        1. Cian

          Because essentially it is British money. 200m has left the UK, which is bad for them.
          Should the UK be entitled to some of the tax on the profits on what is essentially British money?

          Reply
      1. mildred st. meadowlark

        An absolute shitstorm over on twitter yesterday involving tones and izzy kamikaze and sibling of dedalus (poor love) and our own dear BS.

        It was a bit mad.

        And went waaaay over my head.

        Reply
      2. Hansel

        This comments section is toxic, because some of us disagree with Tony.

        If we’ve learned anything from Brexit, it’s to favour large steps into the unknown for political purposes. There will be no bad consequences.

        Since we can see exactly how important the tax status is to them (percentage wise) can we suggest ways to try to make up some of that percentage gap elsewhere? What are their costs and how can we reduce them: utilities, training, raw materials: what can we do to make Ireland more desirable.
        Or else try to lock them in to a meaningful social contract, like David McWilliams is advocating (build houses/public transport for employees etc). All this BEFORE we put-everything-on-red please.

        Reply
      3. mildred st. meadowlark

        Lads, why was my comment removed?
        Is it because I used a bad word again? Am I going to have to restart my good-natured curse war with you?
        In all seriousness, this spat is free to be read on twitter if you search for it. What I have stated is in the public domain – so why exactly has my comment been removed? I am not saying anything defamatory about anyone here. I named the people involved in the very public spat, which as far as I know, is not a crime. If you can provide me (swearing aside, which I’ve already acknowledged) a valid reason as to why my comment was removed, I’d appreciate it.

        Andy, there is a link in the comments section from the star wars post yesterday that will show you the mud-slinging which took place yesterday.

        Reply
          1. Brother Barnabas

            I respect you for saying that, Harry. Telling it like it is. Lesser (more ‘girly’) men wouldn’t have the courage. We’re practically twins, you and me.

          1. Andyourpointiswhatexactly?

            I just read through it.
            Crikey.
            I am mostly completely blind to the ebb and flow of the site, but when they listed all the people who don’t post anymore, it made me make a sad emoticon face.
            People get very worked up about things. Said she with a depth of insight that causes other’s faces to light up with admiration.

  3. b

    “Ctrl+F ‘Leo'” ……wait, what’s going on?

    seriously though, a good article, i don’t agree with every conclusion but it’s well set out.

    I’d fear the unintended consequences of linking tax to numbers of jobs however, not all jobs are of equal value to the company and could be easily gamed by creating more low paid and low skilled jobs in one country while the real value is created elsewhere.

    Reply
    1. Harry Molloy

      Good point. Another consideration is increased automation – we’ve even had the likes of Bill Gates suggesting that we would need to tax computers and robots in the future

      Reply
      1. b

        Indeed, another example is a company like Apple or Google making a huge multi-million investment in a data centre which is crucial to its operation but only needs 10 lads to manage it day to day

        Reply
  4. Junkface

    Ireland: “We’re doing great in the Financial World, Our Economy is strong, we look very clever.”

    The Rest of the World : “How did you do it?”

    Ireland: “Cheating!”

    Reply
  5. Cian

    Tony, can you check your sums please, I’m not sure if I understand this bit?
    “if Company A employs 10,000 people in Germany and 5,000 in Ireland then it can only “shift” 50% of its profits”
    Surely the company has 15,000 employees, so can only shift 33% of it’s profit to Ireland?

    Or to extend this, if Company B employs 10,000 people in Germany, 10,00 people in France and 5,000 in Ireland can it move 50% profit from Germany and 50% from France?

    I agree with you that taxing by employee level makes sense.

    Reply
    1. b

      it’s bluEshirt, dav – if you’re going to keep throwing around the far-right nazi slurs, you can at least get it right

      Reply
  6. ollie

    nigerians send half a billion euro from Ireland to Nigeria each year.
    thats bad for Ireland, bad for you and mw.
    also, that works out at almost €22,000 per man woman amd child.
    there’s tax evasion no one wants to talk about!

    Reply
    1. Andyourpointiswhatexactly?

      Do they not want to talk about it because it’s a a “fact” you’ve pulled out of your hole, perchance?

      Reply
        1. Andyourpointiswhatexactly?

          I know! I thought I’d fling it in there and see what happened.
          There’s a joke to be made but it’s beyond me. I need some food first.

          Reply

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