Sunday 22 September 2019

Ireland faces new 'tax haven' charge weeks before Apple appeal

Stock photo: Reuters
Stock photo: Reuters

David Chance

The revelation that US multinationals booked €83bn in profits here in 2017 comes at a sensitive time for the Government, whose appeal against an EU court ruling that it cut an illegal deal over €13bn in tax breaks for Apple will be heard in three weeks.

The wider international agenda is also shifting, as nations negotiate a second round of proposals to try to ensure that companies actually pay taxes in the countries where they sell their products.

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The Government regularly denies accusations that the State operates as a tax haven and says it is working with other countries on drafting new rules.

It says data used to criticise Ireland's position is flawed, but does not address quite how American companies make more profits in a country of less than five million people than they do in China, France, Germany, Italy and India combined.

Figures released on Monday by the US government showed that efforts so far to crack down on profit-shifting by multinationals have not succeeded, although some of the most egregious schemes involving Ireland have been ended.

The US report prompted University of California Professor Gabriel Zucman to say in a tweet that Ireland "remains the #1 tax haven".

Much of the debate has centred on profit-shifting among wealthy countries at a time when their governments are seeking extra revenues, while companies report huge profits but pay little to nothing in taxes against a backdrop of a growing gap between the rich and poor.

The story, however, runs deeper than the countries with a seat at last weekend's G7 summit held in Biarritz, where French president Emmanuel Macron struck a deal with US counterpart Donald Trump on France's plans to impose a sales tax on digital companies.

According to United Nations estimates, tax diversion from some of the world's poorest countries amounts to $100bn (€90bn) a year, a figure equivalent to the entire official aid budget of the world.

"The compact on tax is looked at from a European point of view," said Michael McCarthy Flynn, senior research and policy coordinator for Oxfam Ireland.

That approach, he said, ignores the needs of poor countries.

"These revenues are needed to fund basic services like infrastructure and education," he added.

Kenya is considering a digital tax, but was warned recently by Michael Murungi, Google's public policy and government relations manager for east Africa, that such a measure could cause trade friction with the US.

As a result of Kenya's inability to fund basic services, caused in part by corporate profit-shifting, it gets aid from Ireland to the tune of €7m a year, and is the State's 11th largest recipient, according to Irish Aid's 2016 report.

While efforts to combat tax erosion have had some successes, it is felt more needs to be done in the second round of measures that are being discussed under the auspices of the Organisation for Economic Co-operation and Development.

The key measure, Oxfam says, would be to agree to a minimum tax that governments could impose. Even then, pressure would remain on the budgets of the world's poorest countries, thanks to tax policies pursued here.

"Governments around the world look at the Irish Government's policies and think we should be like them, but for developing governments particularly, that's a losing race," said Professor Andrew Baker of the University of Sheffield.

"If they respond to a cut elsewhere by cutting their own business rates, it slows the rate of tax lost to elsewhere, and the loss of investment. But there is still a net loss."

Irish Independent

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