‘WE’RE NOT A tax haven, we have never been involved in any kind of tax malpractice’ said Michael Noonan last October.
If your top political figures need to constantly state that you are not a tax haven, then the chances are you probably are a tax haven. And as the UN’s Philip Aston says, ‘when lists of tax havens are drawn up, Ireland is always prominently among them’.
The US Senate similarly found that by any ‘common sense definition of a tax haven’ Ireland easily met the criteria. I mean when Forbes regularly ranks you in their list of ‘Top ten tax havens’, there’s not really much of a debate to be had.
In Ireland there’s no debate to be had, but that has more to do with it being a taboo subject amongst our mainstream media. Take pharmaceutical giant Pfizer’s recent announcement that it was relocating its HQ here, solely for tax purposes.
This drew international condemnation with the Financial Times calling us a financial ‘black hole’, The Guardian arguing that we should be ‘subject to economic sanction’, and US presidential hopefuls Trump, Clinton and Sanders all issuing criticism.
For the most part our media skirted around the issue, stating obvious facts like our tax regime was ‘back in the international spotlight’, but failing to offer any serious analysis of why this was. Then there was the customary denial by a top political figure, this time Simon Conveney, who declared ‘nobody is using Ireland as a tax haven’.
Someone should tell poor Simon to take a stroll down to five Harbour Master Place in the IFSC.
There he’ll find a small building which houses around 250 companies controlling almost €2 billion worth of assets, but he won’t find any employees – because there are none. Not even a fella to clean the brass plates on the doors!
The OECD has launched its new Base Erosion and Profit Shifting project (BEPS) designed to clamp down on the kind of tax dodging measures Ireland supports, whilst there has been talk of standardised corporation tax rates at the European level.
This is a clear indication of the way the wind is blowing, meaning Ireland urgently needs to change course. The first step is facing up to the fact that we are a tax haven, so let’s review the historical and contemporary evidence.
A taxing history
The dominant narrative here in Ireland is that we were the economically ‘sick man’ of Europe up until the 1990s, after which time we slashed corporation tax, multinationals flocked and the Celtic Tiger was born. It’s the old low corporation tax = high growth rates line, yes that old canard!
In reality our tax haven strategy was born in the 1950s after a range of tax exemptions on corporate income and profits, as well as offshore tax exemptions were introduced. But it was the 1970s before things really got going, when Ireland was marketed abroad as a ‘no tax’ regime and the idea of establishing an Irish Financial Services Centre was hatched.
Back in 2000, Padraic White, former head of the IDA and one of the IFSC’s chief architects, co-authored the book The Making of the Celtic Tiger. The book describes how White recruited a Wall Street expert on offshore banking, who ‘examined the success of Bermuda in creating jobs in financial services, and he was satisfied that Ireland could emulate its achievement.’
Yes, Ireland planned to create its own Bermuda triangle, but the only thing disappearing would be the taxes of multinationals. Although the Central Bank initially rejected the plan because it ‘smacked of a banana republic’, the election of Charlie Haughey, saw the plan quickly revived.
Today the IFSC administers almost 50% of global alternative investment funds (hedge funds, venture capital, derivative contracts, mortgage back securities, etc) and has disparagingly been referred to as the ‘Lichtenstein on the Liffey’.
But as the graph from the Tax Justice Network demonstrates below, the Celtic Tiger didn’t take off because large multinationals flocked here after we slashed corporation tax in the 1990s. Ireland had long been trying to market itself as a tax haven, it just wasn’t working, not until we gained access to the European Single Market in 1993.
If it walks like a duck…
The two defining characteristics of a tax haven are; (1) a jurisdiction there is little/no tax liabilities for foreign individuals/businesses and (2) where key financial information is suppressed.
1. Multinationals
Our 12.5% corporation tax rate is often referred to as the ‘cornerstone’ of our economy, but even the dogs on the street know that the amount that’s actually paid is as little as 2%, and sometimes it’s nothing at all.
Between 2007 and 2012, the likes of Google, Microsoft, and pharmaceutical giant Abbott Laboratories, all managed to pay less than 1% tax on their profits.
Bermuda is top of the charts not because of genuine economic activity.
2. Tax deals under investigation
Last year a report by 19 European nongovernmental organisations found that the lack of “financial and company transparency” is one of the reasons Ireland is so attractive a location to corporate subsidiaries.
This shouldn’t be surprising, just take the example of Apple, which is now being investigated by the European Commission to see if our government gave them a number of tax deals. Our strict law surrounding taxpayer confidentiality has meant that these deals have been beyond the scrutiny of the public and the Oireachtas, even though they are of huge significance to the exchequer.
Our government doesn’t seem to like transparency, especially not in the area offshore trusts. The users of trusts enjoy relative anonymity which makes it difficult to ascertain who owns them, what assets they control and how to tax them. That’s why the establishment of a public register of all the beneficial owners of companies and trusts is being pursued at the European level, but unsurprisingly, our government along with the likes of Luxembourg are lobbying hard against this.
What’s the fuss?
Our tax haven strategy isn’t just screwing our own citizens; we’re screwing the citizens of other countries too. Our legal framework undermines the tax laws of other nations by inducing economic activity to relocate here purely to dodge tax. And it’s not just developed countries who are losing out, Christian Aid estimates that the loss to developing countries from the kind of transfer pricing operations is somewhere in the region of $160 billion annually.
For that reason the international community is now taking steps to clamp down on tax havens and the transfer pricing they facilitate. With the net beginning to close Ireland needs to change direction before the decision is taken out of our hands. Attracting investment solely by way of low taxes is the policy equivalent of a one trick pony.
It’s high time we put this pony out to pasture.
Cillian Doyle is an economist and activist. He works as an executive officer at Trinity College Dublin.
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