Saturday 3 December 2016

There is a definition of a tax haven - and Ireland doesn't make that grade

While pub savants and panel guests on radio shows throw out phrases as if they were truth, the fact is that Ireland is far from being a tax haven. And Suzanne Kelly can prove it

Suzanne Kelly

Published 02/10/2016 | 02:30

Suzanne Kelly. Photo: Brian McNamara
Suzanne Kelly. Photo: Brian McNamara

Every day at 9am, Irene Ryan (or Mrs Ryan as we called her) used to appear outside my aunt's pub. The minute the doors opened, she would rush in and moan, clutching an apparent side-cramp and say: "Oh my perpetrated ulster! Give me a brandy and a slice of lemon to settle it quick, Mrs D."

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If a hospital doctor were to write "a perpetrated ulster" on a patient's chart, he would probably be disciplined by the medical council or, worse, struck off. That is because in the world of medicine, meaning matters. Words convey technical and precise information - the improper use of colloquialisms could result in serious consequences for a patient. There is no point in having your tonsils removed if a suspect thyroid tumour is the problem. Some politicians have no qualms using dodgy colloquialisms in the Dail and expect to be taken seriously when they explain that they are legislators and formally represent the citizenry of Ireland.

Take the term 'tax haven'.

Colloquially in the pub it is used by the likes of Mrs Ryan to convey a hot sandy deserted island, with only a few palm trees as companions, where the super wealthy sail in their billion dollar yachts to lodge untaxed monies. So, when a politician talks about Ireland being a tax haven, some droll wag in the pub says if only we had the good weather! To the professional tax legislator, a tax haven means something else. Even though there is no world definition of it, it does have a precise and technical meaning.

The OECD stated that for a country to be a tax haven, it had to have certain characteristics, as follows:

• no taxes at all, or nominal taxes - such as a fixed annual corporation tax charge of €100. Income tax and inheritance tax usually exempt;

• secrecy, especially bank secrecy;

• no exchange of any information;

• absence of any activity to take advantage of lower rates of tax.

The characteristics of the Irish tax system do not come within this definition of a tax haven. For several reasons:

• Ireland has significant rates of income and inheritance taxes. It collects the average expected amount of corporation tax, where the trading rate can been seen to be low at 12.5pc. The non-trading rate is 25pc;

• banking secrecy not an issue. Vigilant money laundering legislation. Disclosure of bank details to Europe and US under EU Directive on Mandatory Automatic Exchange of Information in the field of Taxation (DAC2 - September 2016) and FATCA (Foreign Account Tax Compliance Act US) and FATCA (Foreign Account Tax Compliance Act US);

• massive exchange of information under the Double Taxation Treaty network. Look at all the back-tax on foreign funds collected in Ireland over the past 20 years. Computerisation has had a huge impact on the distribution of information in nanoseconds;

• the corporation tax rate of 12.5pc on trading income applies to all corporates, whether local or foreign or where they are sizeable or small. It is not an exclusive rate for foreign companies with no real presence in Ireland.

In addition, the language of business English is spoken fluently, the manner of doing business is not unduly complex, transfer pricing rules meet best international practice and it is part of the most significant modernising of international tax, OECD BEPS (Organisation for Economic Cooperation and Development on Base Erosion and Profit Sharing) for tax purposes, which is constantly reviewing disclosure and tax competition between countries.

Most importantly of all, the rest of the informed world does not regard Ireland as a tax haven.

Describing Ireland as a tax haven, where it is obviously not one, serves to fuel inaccurate international commentary when quoted and may undermine many Irish people's faith in a tax system which is fairly robust.

So the next time you hear a politician describe Ireland as a tax haven, offer him or her a brandy and lemon as they are using the colloquial vernacular of the pub and cannot be relied upon to use the precise and technical meaning of the term, which any parliamentary legislator might be expected to use in the Dail or Seanad.

Suzanne Kelly is one of Ireland's leading tax lawyers

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