Corporate tax avoidance and help for the poorest
Sir, – Regarding Chris Johns’s article (“US in chaos but Ireland practises grown-up economics”, July 24th) on the progressive nature of Ireland’s tax system a few additional points need to be made.
First, he fails to discuss the large levels of wealth inequality in this country which our tax system actively facilitates. Wealth inequality in Ireland mirrors global trends, as has been documented by Oxfam, with more and more wealth being concentrated in fewer hands. According to the think-tank Tasc, wealth inequality in Ireland has increased significantly over recent decades with the top 10 per cent of the population now holding almost 54 per cent of Ireland’s wealth, while the bottom 50 per cent hold less than 5 per cent.
This means that half of Irish households, especially those on low incomes, have little or no assets. This has serious implications for social cohesion and future social policy.
Second, income tax, however progressive, is only one part of Ireland’s overall tax system. A high VAT rate and other similar charges proportionally cost poorer households more, but raise a similar level of revenue as the income tax system.
Ireland’s corporate tax rate has no doubt been an important factor in attracting foreign direct investment and creating much needed jobs.
However, despite initial reforms, Ireland’s system continues to facilitate significant corporate tax avoidance which has limited, if any, positive economic benefits for Ireland, but has greatly damaged our international reputation. Chris Johns rightly recognises that “corporate taxation could be further reformed” and the Irish Government, to its credit, has also acknowledged that further reform is necessary.
One of the drivers of global inequality is corporate tax avoidance, with the UN estimating that developing countries lose around $100 billion annually as a result, depriving them of the vital revenue to provide the health, education and infrastructure that lift people out of poverty.
Ireland’s corporate tax policy must be seen within this global context and its possible effects on poor and marginalised people elsewhere.
To deliver on reform, the Irish Government must address two areas – increasing transparency and addressing profit-shifting. Ireland needs to agree meaningful legislation with its EU partners to ensure that multinationals publicly report on a country-by-country basis where they make their profits and pay their taxes.
Ireland should also agree to publish core elements of any bilateral tax rulings, excluding any sensitive data, as is the practice in other EU countries.
Ireland’s transfer pricing (the price applied to internal transactions of goods and services within a multinational company) regime also needs to be reformed to tackle profit-shifting.
It is astounding that Irish Revenue officials do not have the power to investigate cases where they believe transfer prices to be overstated in Ireland’s favour, so as to identify potential abuses which could lead to revenue losses in developing countries.
These reforms could maintain Ireland’s reputation as a champion of the rights of the world’s poorest without damaging our competiveness. They could also contribute to Ireland’s tax system, in its totality, becoming truly progressive. – Yours, etc,
Senior Research and