Ireland is the world’s biggest corporate ‘tax haven’, say academics

Study claims State shelters more multinational profits than the entire Caribbean

Dublin’s IFSC. A new study estimates that foreign multinationals shifted $106 billion   of corporate profits to Ireland in 2015. Photograph: Jason Alden/Bloomberg

Dublin’s IFSC. A new study estimates that foreign multinationals shifted $106 billion of corporate profits to Ireland in 2015. Photograph: Jason Alden/Bloomberg

 

Ireland is the biggest “tax haven” in the world used by multinationals to shelter profits, according to a new study by economists from the United States and Denmark.

The research from academics at the University California, Berkeley and the University of Copenhagen estimates that foreign multinationals shifted $106 billion (€90 billion) of corporate profits to Ireland in 2015.

This was more than all of the islands of the Caribbean combined ($97 billion/€83 billion), and well ahead of Singapore ($70 billion/€60 billion), Switzerland ($58 billion/€49 billion) and the Netherlands ($57 billion/€48 billion), according to the researchers.

“By our estimates, Ireland is the number one shifting destination,” the paper states.

The Department of Finance last night rejected as “overly simplistic” much of the findings made in relation to the Republic in the paper – The Missing Profits of Nations – authored by economists Gabriel Zucman, Thomas Torslov and Ludvig Wier. The department also rejected the notion that the Republic is a tax haven.

The research paper estimates that $1.7 trillion (€1.45 trillion) of foreign profits were made by multinationals, primarily from the US, in 2015 and that almost 40 per cent of this total was shifted to tax havens.

US multinationals

The authors defined “tax haven” using a list of nations drawn up in 1993 by prominent US tax academics, James Hines and Eric Rice. They added Belgium and the Netherlands to the 1993 list.

The researchers homed in on the high level of profits declared in the State by US multinationals, relative to their numbers of employees here. The paper claims US companies declare $8 of profit in the Republic for every $1 spent here on wages.

This, the authors say, is about 16 times the average for “non tax havens”. They claim the apparently turbo-charged profitability-per-head in the State is down to the huge volume of profits shifted to this jurisdiction from abroad.

The research estimates that profit shifting by multinationals costs tax authorities globally about $200 billion (€170 billion), and reduces by 20 per cent the taxes paid in the European Union by multinationals.

The paper considers the relatively high share of national income in Ireland attributed to corporate tax, which the authors put at more than 5 per cent in 2015, behind Malta at 8 per cent and Luxembourg at 7 per cent.

“Until the 1990s, Ireland used to collect relatively little corporate tax revenue, about 1.5 per cent to 2 per cent of national income – significantly less than the US,” the paper says.

“Then, as profit shifting surged, so did tax collection: since the mid 1990s, Ireland has collected significantly more corporate tax revenue (as a fraction of national income) than the US – about twice as much in 2015.”

Overly simplistic

The Department of Finance last night said “it is overly simplistic and totally inaccurate to simply examine the number of employees in a country and assert what amounts of corporate tax should be paid in each country on that basis”.

“The concept of value creation considers a much wider range of factors and looks at all types of activity and assets that create value in a business,” the department said.

“Ireland is not a ‘tax haven’ and does not meet any of the international standards for being considered such,” the department said.

The Organisation for Economic Co-operation and Development (OECD), an intergovernmental club for rich countries, says Ireland does not meet the definition of a tax haven.

OECD officials have said tax havens are countries with “a zero tax rate, no transparency or exchange of information, and [where multinationals have] no real operations on the ground”.

Speaking in Germany this week, former Greek finance minister Yanis Varoufakis claimed Ireland was a tax haven “free-riding” on the rest of Europe.