Tax policy under the spotlight

 

For Ireland, and for Taoiseach Enda Kenny, the issue of tax evasion, tax avoidance, and tax havens could not have surfaced at a less opportune time. Ireland currently holds the presidency of the European Union, and Mr Kenny yesterday chaired a one-day summit meeting of EU leaders, who sought to agree a joint position on the vexed question of corporate tax avoidance. On Tuesday, a US Senate sub-committee heard Apple’s chief executive, Tim Cook, explain how in 2012 the company paid taxes of just 2 per cent on its foreign earnings. Apple did so by aggressive tax planning, by channelling much of its huge overseas earnings through a network of Irish subsidiaries to minimise its tax bill. Next month at the G8 meeting of world leaders in Fermanagh, where tax evasion and avoidance will again be discussed, Mr Kenny, as the EU’s representative, may find himself once more in the firing line.

This week’s sharp exchanges in Washington between Mr Cook and Senators John McCain and Carl Levin – who claimed Ireland was a tax haven – echoed similar sentiments by politicians in London last week. There, Margaret Hodge, chairwoman of the House of Commons public accounts committee was equally scathing of Google’s tax avoidance measures, which involve routing royalty payments for intellectual property from Ireland to Bermuda. For Ireland, the reputational damage inflicted and the adverse publicity generated by this controversy has been considerable. The charges made now need to be countered, speedily and effectively, by both political and diplomatic means. First, by Government setting out a clear narrative on corporate tax that can be easily understood – at home and abroad – and that rebuts some of the erroneous claims made. Second, through a major diplomatic initiative in the US to ensure there is a better understanding of the Irish position on corporate taxation.

As the Taoiseach has pointed out, claims that Ireland is a tax haven are unjustified. The OECD, the international arbiter on the issue, has already decided that Ireland meets none of the criteria of a tax haven. Multinationals like Apple and Google employ many thousands in their operations in Ireland, which generate tax revenue for the State in payroll and other taxes. Nevertheless, in a time of recession, with public debt and budget deficits rising and tax revenues depressed, the political clamour for untapped revenue sources to ease austerity increases - not least in the US. In this regard the scapegoating of Ireland, for a problem partly of the US’s own making, is unfair and hypocritical. The failure of the US over many years to lower its high (35 per cent) rate of tax on corporate profits, and thereby encourage multinationals, like Apple and Google, to repatriate some of their huge global profits to the benefit of the American taxpayer, is something its own politicians might well first choose to explain.