Almost half of Irish-registered firms’ profits ‘cannot be taxed’

Trinity professor tells Oireachtas committee €40bn falls outside corporate tax net

Fianna Fáil Spokesperson on Finance Michael McGrath: challenged Prof Stewart’s analysis. Photograph: Alan Betson

Fianna Fáil Spokesperson on Finance Michael McGrath: challenged Prof Stewart’s analysis. Photograph: Alan Betson

Wed, Jun 18, 2014, 01:00

Up to €40 billion, or almost half, of the annual profits made by Irish-registered companies fall outside the corporate tax net because so many multinational subsidiaries here declare they are tax resident elsewhere, it was claimed at an Oireachtas committee meeting yesterday.

Jim Stewart, an associate professor of finance at Trinity College Dublin who studies the tax avoidance practices of multinationals, told the subcommittee on global taxation that many US multinationals paid tax “where it suits them”.

“If you put your name on a shoebox somewhere for six months, you can get your tax residency there,” said Dr Stewart. Using figures for 2011, he has estimated that about €83 billion of “profit-type” earnings were attributable to Irish companies that year.

Abroad

He criticised the fact that if an Irish company is deemed to be controlled from abroad, it is not tax resident here and its foreign income cannot be taxed, whereas all worldwide income of indigenously controlled companies is subject to Irish corporation tax. “It is unreasonable,” he said.

Dr Stewart, who has previously estimated that Ireland’s effective corporation tax rate is about 3.8 per cent, added: “I estimate that up to €40 billion [of the €83 billion] is the profits of US multinationals incorporated in Ireland, but which are controlled or managed elsewhere.”

His analysis was challenged by committee member Michael McGrath, the Fianna Fáil finance spokesman, who said the figures of foreign-controlled Irish companies should not be included.

Cora O’Brien, the policy director of the Irish Tax Institute, who also addressed the committee, disagreed with Dr Stewart. “Ireland can’t tax income that doesn’t belong to us,” she said.

Speaking afterwards to The Irish Times, Dr Stewart argued that the €40 billion should be included when accurately assessing Ireland’s effective tax rate.

“Those companies are considered resident here if they have to pay VAT on anything. If they have staff, they pay employers’ PRSI. So why then are they not considered resident just for corporation tax? Revenue might consider them not resident here, but you can be sure the IDA and everybody else counts them when doing up the job numbers,” he said.

Revenue

Dr Stewart said the tests applied by Revenue to determine where a company is controlled are “very ambiguous”. He also said Ireland’s industrial policy was too tax-dependent and suggested that policymakers were overly influenced by tax professionals who work for the major accounting firms that devise the tax strategies of the multinationals.

“Some of the experts [consulted by the State] are really experts in tax avoidance. How can we be sure that they don’t just come up with policies that are suitable for their multinational clients?” he asked.