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Fintan O’Toole: Ireland is becoming the tax haven of choice for profit-shifting multinationals

Our national symbol is no longer the Tricolour but a big sign saying ‘12.5%’

Tax haven: Yanis Varoufakis says Ireland is a freerider piggybacking on the rest of the world. Photograph: Matteo Bazzi/AFP/Getty

If some malicious fairy cursed us to have to speak only the truth, we would be forced to admit that our most precious national symbol is not the Tricolour or the harp or the shamrock. It is a big flashing sign that says, simply, “12.5 per cent”.

Ireland’s low corporation-tax rate is not just the lure we dangle in front of multinational investors. It has become virtually the only unqualified expression of Irish sovereignty.

In 2010, when that sovereignty collapsed and Ireland became a ward of the European Union, the European Central Bank and the International Monetary Fund, we had our Meatloaf moment. We would do anything for the troika, but we wouldn’t do That. That which we would not do under any duress was even contemplate raising the 12.5 per cent rate.

But if corporation tax is the battle standard of our republic, it is looking rather tattered after taking fire from three directions this week. First Yanis Varoufakis, the left-wing former Greek finance minister, told an audience in Munich that "of course Ireland is a tax haven. They are piggybacking, freeriding on you, on us, by allowing Apple and Facebook to pay 2 per cent tax."


Multinationals shifted $106bn of profits to Ireland in 2015, more than to all of the islands and tax havens of the Caribbean combined

The irony is that this may be the only issue on which Varoufakis’s nemesis, Angela Merkel, is likely to agree with him. However strongly the Government insists that Ireland is not a tax haven, his characterisation of the country is very broadly shared in German public and political discourse.

Given the increasing importance of Irish relations with Germany after Brexit, this is a problem of some urgency.

Even more damaging than Varoufakis's fiery denunciation, however, is the publication of a coldly analytical academic paper by the National Bureau of Economic Research, the leading independent economic think tank in the United States – very much a mainstream outfit.

The Missing Profit of Nations, by Gabriel Zucman of the University of California and Tomas Torslov and Ludwig Wier of the University of Copenhagen, tracks the scale and effects of "profit shifting", the process by which corporations move profits around the world so that they are declared in the places where they will be most lightly taxed.

At stake, the authors find, is $200 billion a year in taxes saved by corporations – and therefore lost to national governments that could be spending it on education, healthcare or infrastructure.

From an Irish perspective the findings could hardly be worse. The headlines generated by the report are bad enough: foreign multinationals shifted $106 billion, or about €90 billion, of corporate profits to Ireland in 2015. This was more than all of the islands of the Caribbean – including the notorious havens of Bermuda, the Caymans and the Virgin islands – combined. (They received $97 billion, or about €82 billion.) This makes Ireland the world's leading destination for corporate money seeking a permanent holiday from the social responsibilities encoded in taxation.

We have here a problem of perspective. We think of ourselves as small – Gulliver in Brobdingnag, the land of the giants. Irish attitudes to corporate taxation are shaped by the notion that we are a tiny country with a history of underdevelopment. Who could begrudge us a few sprinklings of gold dust from the great treasuries of global wealth?

Apple’s announcement that it would pay $38 billion in taxes to the US and make significant investments in the country is a win for President Donald Trump. Photograph: Aly Song/Reuters

But within the sphere of corporate tax avoidance we are in fact the giants – Gulliver in Lilliput. We think we can behave like charmingly roguish little elves even when, for other countries, we loom large as the biggest ogre in the tangled forest of multinational financial shenanigans.

Ireland’s $106 billion accounts for more than a sixth of the entire stock of $600 billion of annual shifted profits globally. If we were counting this proportion in people instead of money, Ireland would be size of India.

But beneath these headline figures the report has something even more damaging to say. It concerns the question that is roiling the democratic world: inequality. The authors produce some stark figures to show how Ireland’s corporation-tax regime helps to funnel money to wealthy shareholders at the expense of wage-earners.

In 2016, 37% of corporation-tax receipts came from just 10 companies, while 70% was paid by the top 100. To put this in context, 44,000 companies pay corporation tax

The report says that, while for local firms the ratio of taxable profits to wages is typically 30-40 per cent, “for foreign firms in tax havens the ratio is an order of magnitude higher” – and in Ireland it is a staggering 800 per cent. As the authors conclude, “profit shifting redistributes income to the benefit of the shareholders of multinational companies. Because equity ownership is concentrated, these shareholders tend to be wealthy, hence profit shifting tends, everything else equal, to increase inequality.”

The third fusillade of the week came from behind our own lines. The Dáil's Committee of Public Accounts produced a report on Wednesday that showed how deeply destabilising is Ireland's reliance on the corporation tax it gets by facilitating this system.

The committee pointed out that, in 2016, 37 per cent of corporation-tax receipts came from just 10 companies, while 70 per cent was paid by the top 100. To put this in perspective, there are 44,000 companies paying corporation tax.

As well as being very narrowly based, this income is also extremely volatile: in 2014, €48 billion was declared for the 12.5 per cent rate of tax; in 2015 the figure was €63 billion. A revenue base that can rise by €15 billion in a year can also fall dramatically in 12 months. Corporation tax is Ireland’s offshore oil – and oil revenues can create political and economic instability.

In answer to all of this, Irish governments will say what they have always said: that Ireland is not a tax haven by OECD standards. That may well be true, but it matters less and less. In international discourse Ireland is not just a tax haven; it is becoming the tax haven. This will become an ever more established fact unless we do something about it.

And as Varoufakis’s description of Ireland as a freerider piggybacking on the rest of the world is set in stone, it threatens our vital national interest in reorienting ourselves towards Europe in the wake of Brexit. The ride is actually not free any more: it comes at a fearful reputational cost.

What can we do? In the short term, while we think about reshaping a policy that has been in place essentially for 60 years, two immediate steps could change the story.

One is to make the 12.5 per cent, which all the multinationals say they like, compulsory in effect. Revenue says the effective corporation-tax rate for 2015 was just 9.8 per cent, and we know that some of the largest corporations have an effective rate of between 0 and 5 per cent. This has to stop.

The other thing the Government can do is drop its appeal against the European Commission's ruling that Apple should not have been allowed to pay rates of corporation tax as low as 0.001 per cent and must now pay the taxes it avoided.

The practical effect of this would be minimal, as Apple would almost certainly continue with its appeal. But the symbolic and reputational effects would be immense. The Apple ruling and Ireland’s appeal is a major international story, lavishly covered everywhere, and it has become a global symbol of corporate greed and governmental collusion.

Were Ireland to stop defending the indefensible, it would have some chance of defending its real interests in a changing world.