Sir, – Last Tuesday, the European Parliament agreed a set of recommendations on how to deal with the large-scale tax avoidance uncovered by the Paradise Papers, released in November 2017. One of these recommendations, passed by a massive majority of 505 to 63, was that Ireland along with the Netherlands, Malta, Cyprus and Luxembourg should be regarded as an “EU tax haven” until substantial tax reforms are implemented.
While these recommendations are non-binding, they are still important. Ireland has made some welcome reforms, but these have been nowhere near comprehensive enough to deal with the issue. We have closed the “Double Irish”, but not until 2020; we have closed the “Single Malt”, but have provided 100 per cent tax relief related to the transfer of hundreds of billions worth of intellectual property (IP) assets to Ireland; we claim to support tax transparency, but are blocking efforts to increase public transparency of multinationals’ tax affairs.
There is clear and growing evidence that Ireland is still acting as a “conduit”, facilitating large-scale tax avoidance.
A recent Oxfam report, Off the Hook, established that royalty payments sent out of Ireland were equivalent to 23 per cent of the country’s gross domestic product during 2017, more royalties than the rest of the EU combined, making Ireland the world’s number one royalties provider. We know from the Paradise Papers that companies use passive income such as IP royalties to avoid tax. High levels of these types of payments, far above normal economic activity, indicate that a jurisdiction is facilitating tax avoidance.
These issues are being closely watched, not just in the EU but around the world.
The UN estimates that developing countries lose around $100 billion annually as a result of corporate tax avoidance every year.
This deprives developing countries of revenue needed to provide vital healthcare, education and infrastructure that lift people, particularly women, out of poverty.
In 2018, a UN Women report concluded that transnational tax avoidance and tax havens have negative effects on gender equality.
The European Parliament has also recognised the harmful effect of tax avoidance and evasion on women in a new report on gender equality and taxation policies in the EU.
There is now a growing consensus globally that more fundamental reform of the international tax system is needed. The IMF has this month published a report on the need for such reform with the IMF managing director stating that “Advanced economies have long shaped international corporate tax rules, without considering how they would affect low-income countries.”
Efforts to reform the global tax system are now taking place at the OECD level, an approach which Ireland supports, with discussions on systematic reforms such as the allocation of taxing rights and a global minimum effective tax rate.
This is a difficult conversation for Ireland to have. We in Ireland should be rightly proud of our ability to attract international investment that generates much-needed jobs and prosperity.
This is not about our 12.5 per cent corporate tax rate, nor the real and substantive foreign direct investment which brings jobs and income to Ireland. It is about the parallel system of loopholes and accountancy tricks which facilitate tax avoidance and bring questionable benefits to Ireland.
Defining our national interest in terms of supporting the maintenance of an international tax system that disadvantages the world’s poorest countries is not in keeping with our commitment to international development and human rights.
The Irish Government needs to engage constructively with the OECD reform process to ensure that the poorest countries stop paying the price for a tax system that is increasingly incompatible with today’s global economic system. – Yours, etc,