Is Ireland a Tax Haven for Corporations?

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Economy, International

There has been a clear contradiction in the last week between international sources and the Irish government in relation to Ireland’s tax status. On the one hand we have the Taoiseach purporting that Ireland does not “do special tax-rate deals with companies”.  Tanaiste, Eamon Gilmore, has been adamant that Ireland’s corporate tax structure remains transparent. He has also toed the Taoiseach’s line that Ireland does not negotiate favourable or particular rates with any corporation.

In contrast both sides of the Atlantic have taken issue with Ireland’s tax structures. Congressional hearings in the United States, investigating Apple’s offshore taxation policies, found that Apple had negotiated favourable tax conditions when setting up in Ireland in the early 80’s.  More startling perhaps was the revelation that Apple had paid 2% on €74 Billion worth of revenue in the last three years. Clearly such figures would suggest discrepancy in the Government’s adamant assertion that Ireland’s corporate tax structures do not constitute ‘Tax Haven’ status.

Foreign sales, accounting for 60% of Apple’s profits, are routed through Irish subsidiaries and taxed nowhere.  Apple’s Irish holding company which has no employees at the top of its foreign operations also serves as a group finance company.  Apple Inc., the U.S. parent of the whole group, pays U.S. tax on the investment earnings of this company. In other words the holding company pays no tax to any government, and has not paid tax for five years.

Other multinational’s such as Google appear to have also taken advantage of the favourable Irish situation. This has been done through the setting up of multiple subsidiaries in Ireland, while still managing these subsidiaries from abroad. Such a situation blurs the legal clarity as to where these subsidiaries are registered and eligible for tax purposes. The outcome of which is that we now have U.S politician such as Democratic Senator Carl Levin saying that companies should not be able to “shift its value to a tax haven which is what Ireland is”.

In the United Kingdom there has been criticism of Google’s method of channeling profits and sales once more through Irish subsidiaries. This practice allows the company to avail of Ireland’s tax regime.

The injustice of all of this is highlighted by recently published research by All Ireland Research Observatory (AIBO), which has noted the stark contrast of tax burden in Ireland.  The change in the relative proportion of different tax receipts between 2006 and 2012 shows that income tax has grown from 27.2% of all tax receipts in 2006 to 41.4% in 2012, VAT has dropped from 29.5% to 27.8%, excise duty remains relatively unchanged at 12.3% to 12.8%, while corporation tax has fallen to 11.5% from 14.7%, and capital gains tax has fallen to 1.1% from 6.8%.

Basically the burden of tax receipts has strongly shifted to individual income tax and the trend on corporation tax has been declining since 2002 despite the boom years and the fact that since 2002 the volume and value of exports has grown.  In other words the rich have gotten richer while everyone else has shouldered the tax burden for the nation.

The introduction of the local property tax is yet another tax burden on individual families.  While the tax burden remains as low as 11.5% for corporations, a full and open debate about raising the tax share for corporations in a real attempt to share the load in an equitable fashion is long overdue.