US firms ‘paid effective tax rate of 2.2% in 2011’

US multinationals reported paying tax rates of 2.2 per cent in Ireland during 2011, according to a new study.

A research paper by Prof James Stewart, associate professor in finance at Trinity College Dublin, also challenges Government claims that effective corporation tax rates in Ireland are just below the headline rate of 12.5 per cent.

Instead, the study suggests Ireland's effective tax rate for American firms is similar to jurisdictions regarded as tax havens such as Bermuda, based on latest US Bureau of Economic Analysis statistics.

The research paper’s findings come at a sensitive time as Ireland finds itself in the global spotlight for helping multinationals avoid taxes around the world.

Internet giant
On a visit to Paris last week, Taoiseach Enda Kenny faced repeated questions over the decision of US internet giant Yahoo to transfer its finance operations from France to Ireland.

Mr Kenny quoted a report by consultants PwC and the World Bank Group which found Ireland's effective corporate tax rate was about 11.9 per cent, higher than France's effective rate of 8.2 per cent.

The Organisation for Economic Co-operation and Development is examining ways of closing corporate tax loopholes such as the “double Irish” and “Dutch sandwich”.

Corporation tax remains a vital source of revenue for the State. It collected some €4 billion in these taxes during 2012, while more than 100,000 people are employed by US multinationals.

Prof Stewart’s paper states the effective tax rate in the PwC report is based on a hypothetical Irish company that sells ceramic flower pots and has no imports or exports.

Tax strategies
These assumptions automatically rule out tax planning strategies widely used by subsidiaries of multinational corporations.

"It is surprising that this study is frequently cited by Irish Government sources to the effect that effective tax rates in Ireland are not that different or even higher than in other EU countries," Prof Stewart's report states.

“ Critics of Irish tax policy in other countries are unlikely to be persuaded that their criticisms are unfounded on the basis of such flimsy evidence.”

PwC was unavailable for comment yesterday.