Irish tax code has been ‘misused’ by multinationals, OECD says

Pascal Saint-Amans, chief architect of OECD’s tax proposals, talks to Arthur Beesley

Pascal Saint-Amans, chief architect of OECD’s tax proposals

Pascal Saint-Amans, chief architect of OECD’s tax proposals


Q: What is the import of these proposals for people in the Irish tax world and for Irish people concerned about public criticism of Ireland’s regime?

A: “I think the measures presented today will put an end to the very aggressive tax planning and it may have an impact marginally on Ireland when it’s abused to locate the profit in Bermuda.

But at the end of the day that’s good news for Ireland because it means that what I call the single Irish - meaning the 12.5 per cent, broad-based low rate will be very attractive, even more attractive, because today you have the choice between zero per cent in Bermuda with an artificial scheme through Ireland or locating the real business in Ireland and paying your taxes in Ireland, your full taxes in Ireland.

That’s what it means. So on the one hand putting an end to the abusive schemes, neutralising them, getting the instruments to countries to protect the tax base. But, on the other hand, recognising that tax competition is fine as long as you play by the rules.”

Q: Is there particular concern in the OECD that there are abusive schemes in Ireland? Is Ireland a particular source of difficulty?

A: “Will I surprise you if I mention the double Irish which is in the mind in the man and the woman in the street in most of the countries? So yes, there is an issue because Ireland has been misused by a number of companies to locate the profit in Bermuda to use check the box which is in American companies. Is Ireland guilty? Of course not. It’s being used. And now we’re providing all the countries instruments to protect themselves from that. Would Ireland move to anticipate these changes? That may be a good move that I think your government is considering.”

Q: Would it be better for Ireland to wait for other countries? Companies follow the advantage and they could move business to other countries that don’t move.

A: “That’s where I would say that Ireland would need to move rather sooner than later because it’s not about closing down Irish regimes and leave some others open it’s about providing the countries where the companies are locating instruments to protect their tax base. We’re not asking to close down any regime. We’re just providing instruments to neutralise the use of these regimes. In other words, even if Ireland does not move, the countries will protect themselves from the double Irish or from other schemes which result in the divorce between location of the profit and the location of the activities. So what’s the right reaction? What’s the right strategy in that environment? It’s not about levelling the playing field among countries because a number of countries will not change. We don’t expect Bermuda to put in place a corporate income tax but the schemes using Bermuda will be closed down.”

Q: Do you believe from what you know of the Irish Government that is very seriously dealing with these issues?

A: “We are working very closely with the Irish government as secretary general Gurria said, there is a lot of work with a good understanding a very good participation of Ireland to process. I think through that mutual understanding, good progress is to be expected.”

Q: The argument was always made in Irish circles that there was nothing to be done because Irish law was very open, very transparent, statute-based, and that it would have been improper to cave in to Franco German pressure during the bailout?

A: “It is true that the Irish tax regime is transparent. There is nothing to hide and that’s not the point. The point is not about hiding. The point is about abusing some of the possibilities to locate the profit in other jurisdictions. So not even using the 12.5 per cent attractive rate but rather abusing the location in Ireland to locate the profit in Bermuda or in other no tax jurisdiction meaning that you reduce the tax base in Ireland, you strip the profit out of the other countries and you end up in a no tax jurisdiction. That’s the problem that we are addressing in the first set of deliverables.”

Q: Is there a threat here to Ireland’s policy on inward investment, which is crucial for the effort to boost employment in the wake of the crash?

A: “I do not think that there is a threat to employment, rather the other way around. I think that what is happening might actually attract more inward investment to Ireland. It may have an impact on fake investment or investments which are actually booked in Bermuda, where you have a licence there, but no real activity where the real activity is in Ireland so it may translate into more revenue for Ireland, and you also need it but also more inward investment. Because today you have the choice between 35 per cetn in the US, 36 per cent in France, zero per cent in Bermuda, 12.5 in Ireland. What do you choose? Well, zero per cent is better than 12.5. If you close down the zero per cent then Ireland gets even more attractive than it is today.”

Q: One wouldn’t like to be accused of asking a leading question, but do you believe it would be in Ireland’s reputational interest to move on this front?

A: “I do tend to think that, indeed, countries which anticipate as well as companies that will anticipate what is happening because what we publish today is having an impact immediately even before it’s translated into domestic legislation because it sets the new framework within which companies will operate in the coming years, so anticipating is always good including for reputation.