Why do minimum wage earners pay more tax than billionaire investors?
Cantillon: ‘No minimum profit’ requirement allows SPVs pay little tax in Ireland
Burlington Loan Management, an $8 billion Irish unit of US hedge fund Davidson Kempner, paid $125 (€111) in corporation tax in Ireland last year. Photographer: Chris Ratcliffe/Bloomberg
Irish special purpose vehicles (SPVs), structured finance arrangements designed to attract global debt securitisation to Dublin, pay double the normal 12.5 per cent rate of corporation tax because they are not trading businesses.
But what is the point in this higher rate, if they are all deliberately constructed to have almost zero taxable profits? The State could hike the tax rate for SPVs up to 99 per cent if it wanted, and still it would generate no fiscal return.
No profits means no taxes, no matter the rate.
Burlington Loan Management, an $8 billion Irish unit of US hedge fund Davidson Kempner, is the latest major SPV to report its financial results. It paid $125 (€111) in corporation tax last year, derived from its management of property loans and other distressed assets from all over the globe.
A minimum wage worker in Ireland, working full-time and earning €9.15 per hour, pays €887 in tax each year, comprising PRSI, income tax and USC.
It must be great for the legal and accounting professions in Ireland that this country has a sophisticated SPV regime designed to attract business from all over the world, earning the local firms huge advisory fees in the process.
But if a minimum-wage worker, doing honest work in a fast food joint or sweeping floors in a shop, pays eight times as much tax as the local hub of a $25 billion hedge fund, there is something seriously wrong with Ireland’s tax code.
All of the major Dublin law and accounting firms have glossy brochures aimed at companies such as Davidson Kempner, espousing the virtues of this country’s regime. All zone in on the fact that Irish SPVs have the advantage of a “no minimum profit” requirement.
In other words, you can structure your finance vehicle to make zero profits here so that it pays no tax, funnelling the value abroad to tax havens.
SPVs are currently a source of political controversy after TDs questioned their tax avoiding strategies. Here’s an idea for legislators: impose a minimum profit requirement on Irish SPVs, derived from the value of their assets.
Ireland gets all the reputational risk of housing risky SPVs. Taxpayers should at least get a slice of the profits.