Ireland’s corporate tax rate hurting emerging economies – Oxfam

Aid agency says pharma giants are using system to deprive countries of €100m a year

Ireland's corporate tax system is helping some of the world's largest drug companies deprive emerging economies of almost €100 million a year, according to aid agency Oxfam.

The group, which campaigns against global poverty, says in a report published on Tuesday that legitimate tax practices have allowed four of the largest pharma companies “deprive the cash-strapped governments” of seven developing countries of more than €96.6 million each year.

The companies examined in the report, Hard to Swallow: Facilitating Tax Avoidance by Big Pharma in Ireland, are Abbott, Johnson & Johnson (J&J), Pfizer and Merck. All four operate in Ireland where, between them, they employ about 10,000 people.

The Irish report is produced in parallel with a wider study by Oxfam America, Prescription for Poverty: Drug Companies as Tax Dodgers, Price Gougers and Influence Peddlers, that will also be published on Tuesday. Both examine the impact on seven developing economies – those of Chile, Columbia, Ecuador, India, Pakistan, Peru and Thailand.


Lower levels

Oxfam alleges that the companies record very high levels of profit in countries such as Ireland, which have low corporate tax rates, while recording lower levels of profitability and profit growth in the developing countries.

It points to the 8 per cent profit recorded by J&J subsidiaries in Thailand while the group’s Irish subsidiaries reported profit of 38 per cent between 2013 and 2015. Thailand has a corporate tax rate of 20 per cent, the report notes.

It also cites a similar Thai profit figure for Abbott operations compared to 75 per cent for their Irish businesses. The picture was the same for other developing economies, Oxfam says, with Abbott declaring just 4 per cent profit in Chile (where the corporate tax rate is 21 per cent), while posting a loss of 6 per cent in Ecuador, and a 36 per cent loss in India where there is an average corporate tax rate of 34.2 per cent.

It's an unacceptable irony that the companies that produce life-saving medicines are depriving governments of money that could be used to save lives

Oxfam Ireland said it had determined that J&J had paid an effective tax rate of just 6 per cent in Ireland in 2015, while Abbot paid no tax on profits of €1.2 billion.

The agency accepts that the pharma companies are simply availing of tax rules that allow businesses to structure their operations “in a manner which allocates profits based on variables that are not always necessarily related to business activities”.

Deliberate strategy

It alleges that this is a deliberate strategy on the part of the companies to avoid tax.

"It's an unacceptable irony that the companies that produce life-saving medicines are depriving governments of money that could be used to save lives," said Jim Clarken, chief executive of Oxfam Ireland.

Aside from the money allegedly lost to the developing economies, Oxfam claims the tax practices of the four companies have cost the US government €1.98 billion annually and other advanced economies €1.21 billion.

Oxfam admits that proposals outlined in the Government's recently-published Corporation Tax Roadmap, along with US tax reforms, will go some way to tackle current mechanisms for tax avoidance, but says more needs to be done – especially in addressing the impact of tax avoidance on developing countries.

It is calling on the Government to require “full and effective transparency” for multinationals on country-by-country reporting of their activities as well as to push for a global minimum effective tax rate for companies in all jurisdictions where they operate.

It also wants measures to address profit-shifting and a review of the wording of Ireland’s double taxation agreements – especially those with developing countries.

Dominic Coyle

Dominic Coyle

Dominic Coyle is Deputy Business Editor of The Irish Times