Monday 16 September 2019

'Phantom' €500bn of investment adds to Irish tax haven claims

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David Chance

Ireland has attracted $545bn (€498bn) of so-called "phantom investments" - financial flows within corporations but across international borders which are commonly used to minimise corporate tax bills - according to a new study.

Ten countries accounted for 85pc of the $15trn in global phantom investments identified in the study by two International Monetary Fund economists and another from Copenhagen University.

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"Interestingly, a few well-known tax havens host the vast majority of the world's phantom foreign direct investment," according to the report by IMF economists Jannick Damgaard and Thomas Elkjaer, with Niels Johannesen from Copenhagen University.

Luxembourg topped the list of countries which funds flow through, with $3.8trn in flows, while Ireland ranked ninth in a list which also included the Netherlands, Hong Kong, the British Virgin Islands, Singapore, the Cayman Islands, Switzerland and Mauritius.

The new report comes hard on the heels of data from the United States Bureau of Economic Analysis last week which said American multinationals declared $83bn profits here in 2017, data which prompted leading tax economist Gabriel Zucman to describe Ireland as the world's number one tax haven.

Phantom foreign direct investments are cross-border financial flows between companies within the same multinational.

These companies typically carry out holding activities, conduct intra-firm financing or manage intangible assets such as intellectual property, often with the aim of to minimising multinational companies' global tax bill, the report said.

The Government here vehemently denies Ireland is a tax haven and cites its work within the Organisation for Economic Cooperation and Development (OECD) to help frame a new tax code as a sign of its commitment to working towards a fair global system.

The Department of Finance says the State's tax policies allow it to compete against much larger countries.

However, the latest report also condemned the State for leading what it called a race to the bottom in terms of corporate tax rates.

"Ireland's revenues from corporate taxes have gone up as a share of GDP because the tax base has grown significantly, in large part from massive inflows of foreign investment," the economists wrote.

"This strategy may be helpful to Ireland, but it erodes the tax bases in other economies."

Tax revenues here are the third lowest as a percentage of gross domestic product in any of the 36 countries of the OECD, although data here is skewed heavily by the activities of multinational companies.

Irish Independent

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