The Department of Finance appears to have ignored advice from the Department of Foreign Affairs by agreeing a double taxation arrangement with Ghana, a treaty that critics say will rob the African country of revenues.
A report by Christian Aid on the eve of a UN General Assembly meeting on finance and development for poor nations said that not only will the tax agreement, signed in February, cut tax revenues in Ghana, but it would also enable profit shifting and tax avoidance. Ghana is the poorest of all the countries with double tax agreements with Ireland and it is a recipient of aid from here.
Citing a letter from the Department of Foreign Affairs and Trade (DFAT) which Christian Aid obtained using the Freedom of Information Act, the campaign group said DFAT raised a red flag over the agreement back in 2012.
"This model generally favours residence-based rather than source-based taxation, meaning that the effect of many DTAs (double taxation agreements) is that capital flows from developing to developed nations," the department said in a report in 2012 as work on the treaty with Ghana got under way.
This means that rather than being taxed in a country where goods and services are consumed, a company's activities are taxed in the country where it has an operating base. In many cases, that would be Ireland for companies such as Apple, where this country is the home base for sales in African countries.
"Countries with these treaties can also be used to channel money between jurisdictions to minimise tax payable, particularly if withholding taxes are minimised to encourage investment - a practice which would clearly not be encouraged in relation to developing nations," the letter from DFAT said.
Since the push for a double tax treaty with Ghana got under way in 2012, Ireland has emerged as the largest single source of the country's foreign direct investment, according to the country's own statistics.
By 2016, the latest year for which official data is available, Ireland accounted for a third of the country's foreign investment stock. "Limiting Ghana's taxing rights over income, profits and economic activity between Ireland and Ghana may thus have a significant impact on Ghanaian tax revenues," according to Mike Lewis, who authored the Christian Aid report on Ghana.
The country collects the equivalent of just 16pc of its economic output in taxes, compared with 25-30pc for most European countries, the report said.
The taxation agreement is still awaiting ratification by the Ghanaian parliament and will cut the domestic 15pc rate of withholding tax on royalties to 8pc, and the rate on technical service fees to 10pc from 20pc.
"It also carries a particular risk since Ireland is Europe's primary conduit for profit shifting via royalty payments, due to its favourable onshore tax environment for intellectual property," Christian Aid's report said.
The new agreement, it is claimed, will also deny Ghana the right to tax capital gains from the sale of assets in its territory, if the sale is executed through the offshore sale of shares in an Irish holding company. This is a procedure that contradicts the recommendations of both the International Monetary Fund and the United Nations Tax Committee.
Christian Aid also said that the proposed tax treaty lacks any of the anti-tax avoidance provisions which Ireland signed up to as a member of the Organisation for Economic Co-operation and Development's move to clamp down on tax shifting.
"Although Ireland has since written to the Ghanaian government to discuss adding such provisions, it has nonetheless pushed ahead with ratification of the DTA prior to the inclusion of any such amendments," Christian Aid said.
The Department of Finance did not respond when asked for comment on the report and whether it went against the advice of the Department of Foreign Affairs.
Ireland says it is working to shape new rules on global taxation and insists that the State does not function as a tax haven.