Deputy Comment Editor
The popular media narrative around Ireland’s corporate tax regime is a myth that won’t be put to rest. The latest round of tax-bashing has been kicked off by Yahoo’s decision to move their financial operations from France to Ireland. French President Francois Hollande has called for action against “big companies who move to countries with low corporate tax”. He has even promised to discuss this with Obama when he visits Washington this week. Such grandstanding by politicians goes down well with domestic audiences, who get fired up by the thought of foreign nations stealing tax revenues and employment from their own country. It’s more vexing, however, when journalists and commentators propagate this narrative. A recent article for Bloomberg by Zachary Mider also deals with Ireland supposedly nabbing corporations from other countries, and efforts in the US to deal with “CEOs whose companies shift their legal addresses to tax havens such as Ireland”.
These accusations have no basis in truth. Ireland is not a tax haven. Last September, when the corporate tax rate was featuring prominently in the headlines, the issue was investigated by the Joint Oireachtas Subcommittee on Global Taxation. Professor Frank Barry from Trinity demonstrated that Ireland could in no way qualify as a tax haven. At the same time the head of the OECD, Dr Angel Gurria, also said that Ireland wasn’t a tax haven. We can clearly see that this is the case by looking at the characteristics of a tax haven identified by the US Government Accountability Office. The first of these characteristics is a nil or nominal tax rate. The headline rate in Ireland is the infamous 12.5% – a figure that by no means counts as nominal. It has been alleged, usually by other governments, that the effective tax rate – the tax rate which corporations actually end up paying – is in fact far lower than this. This too is patently rubbish. An Oxford University study found that the effective rate is about 11.1%, very close to the headline rate, and far higher than the 2% or 3% being quoted by critics.
The second characteristic of a tax haven is lack of transparency in the operation of legislative, legal or administrative provisions. This basically means that there exist complex rules around the tax rate which allow for companies and individuals to avail of loopholes, and thus pay less tax. In reality, Ireland’s corporate tax system is far more straightforward and transparent than that of many other countries. This includes France, whose complex rules and regulations mean that there is very high variance in the level of tax paid by companies. The exception to this in Ireland’s case are so-called ‘grandfather clauses’, where different rules may apply to companies which set up here before the corporate tax system was changed.
Tax havens also have a lack of effective exchange of tax information with foreign tax authorities. Again, Ireland doesn’t fit this description. Nor does it engage in self-promotion as an offshore financial centre. The final characteristic of a tax haven is that there is no requirement in the law for a substantive local presence. This charge alone may have some basis in truth; companies can pay Irish taxes without a large domestic presence. However, this is not true in the cases of the tech companies so often mentioned in the context of this debate such as Google, which has a large operational base here, which is continuing to grow.
Many companies do take advantage of tax loopholes, including some companies which are headquartered in Ireland. However, these loopholes are not the product of the Irish tax system. Instead, they arise from the complex interaction of different tax regimes around the globe. The fact that such differences in tax regimes exist, and that the interconnecting laws are so complex, make such loopholes unavoidable. If Ireland was to raise its corporate tax rate it would not solve the problem of companies engaging in tax avoidance. It would only make us less competitive.
Make no mistake: other countries such as France have a vested interest in Ireland raising its corporate tax rate. For one it allows them to avoid the fact that their own tax rates are often too high and their systems too complex. It also gives them an excuse as to why companies are leaving their shores, instead of dealing with the uncompetitive aspects of their economies which are really driving firms away. Finally, other countries would be only too happy to accommodate corporations leaving Ireland if we were to raise our corporate tax rate. There is no need to increase the Irish rate, nor would there be any advantage to Ireland if the corporate tax system was changed. This debate has far outlived its relevance. We should finally bid it adieu.