Enda ambushed in tax haven spat
POOR Enda Kenny. His six-month term as president of Europe could end in tears. His friends in America are handing ammunition to his enemies in Europe.
Last week Enda was dogged by ill-luck. Just a day before he headed for Brussels to chair a European summit – billed as a crusade against tax evasion – he was ambushed. In faraway Washington he was wounded by friendly fire. The US establishment, so assiduously cultivated by Enda, Richard Bruton and the IDA, openly challenged Ireland's tax bona fides.
As he stumbled into the Brussels meeting, leader of the fight against the evils of tax evasion in Europe, the waiting media were queuing up to ask Ireland's Taoiseach how he felt about Ireland being branded as a "tax haven" at a US Senate hearing.
The timing of the US broadside was terrible. Kenny was forced to deny boasts from giant US multinational Apple that Ireland had given the California company a sweetheart 2 per cent tax deal. Back against the wall, he vigorously contested the "tax haven" charge.
Kenny and Ireland have been wronged. The "tax haven" tag was pure transatlantic rhetoric. Ireland is no tax haven. It has little in common with Cyprus, Bermuda, the Caymans, Jersey, the Isle of Man or the British Virgin Islands. Admittedly, it is an offshore island, but that is where the similarity ends.
Tax havens have a stigma attached. Although they are at times used for perfectly legitimate tax planning, at others they are exploited by crooks to hide money in great secrecy, even to bury booty in secure banks. At their worst, they provide anonymous sanctuary for untaxed, but sinister, earnings, even for drug money. Some tax havens are set up specifically to attract gangsters and their proceeds.
Ireland has attracted little in the form of the proceeds of crime. Indeed, any ordinary decent global criminal with a lump of cash would run a mile from an Irish bank, wisely terrified that it would go bust.
There is little evidence that we are a magnet for ill-gotten gains. We sit in the middle of the anti-money laundering league. And we are hopelessly garrulous. If any of the world's less savoury bandits want to bury money here, they should first be warned that banking secrecy is not our strongest suit. We Irish talk. Russian oligarchs with nest eggs in Cyprus should be tipped off that their guilty secrets are not safe here. Minister for money laundering prevention, Alan Shatter, will confirm to any homeless criminal with full saddle bags that the fortresses of the Irish State leak like sieves.
Last week the foreign press had a field day at our expense. Bloomberg, the New York Times, the Wall Street Journal and the Financial Times majored on our tax regime. They all took up the "tax haven" line, responding to the sensationalism of our former US senator friends, like US Republican presidential candidate John McCain and Democrat committee chairman Carl Levin.
Denials by the dozen were issued in Dublin. Michael Noonan was blue in the face contradicting the Apple claims. Enda Kenny gave numerous interviews challenging the US spin. We were in trouble.
Suddenly our European enemies, sensing blood, seized on the controversy. US politicians, in search of revenue and a scapegoat, had fingered Ireland. European malcontents had been handed a weapon with which to beat us. They were back, whispering about our low corporate tax rate, the source of such envy in Germany, France and other nations. As they eye Google, Amazon, Twitter, Facebook, Intel, Microsoft and Hewlett Packard embedded in Ireland, they cry "foul". Not only is Ireland indulging in that wicked activity of tax competition, we are giving sweetheart deals to US multinationals.
And why shouldn't we, for God's sake?
Apple, Google and the rest are the most buoyant sector in the moribund Irish economy. It is precisely because we have kept our corporate tax rate at 12.5 per cent and given other concessions that they are booming. The answer Enda should have given to critics was not to run for cover, nor to deny special deals. It was to broadcast from the rooftops that Ireland was open for business. He should have invited them to come and view his tax packages.
Yes, we do offer a full a la carte menu of concessions to multinationals thinking of locating here. According to the IDA, we allow a 25 per cent Research & Development tax credit; a special intellectual property regime which provides a tax write-off; an attractive holding company regime including participation exemption, and lots of others.
What on earth does all that "IDA speak" mean? To be honest, I haven't a clue – but I have an instinct. It means that a foreign company's effective tax rate will tank if the various credits, allowances, tax regimes and even generous grants are availed of.
Those who claim that the 12.5 per cent rate is notional, that it really taxes only whatever is left over – after all the allowances are exhausted – are probably correct.
Yes, those tempting sweeteners do slash the effective tax rates. But they do a lot more. They are the clinchers, the cutting edge of tax competition that wins multinational business for Ireland.
Yes, there is an element of sleight-of-hand in our headline 12.5 per cent rate. Yet we are doing nothing that the canny French – with a nominal rate of 33.3 per cent and an effective rate of 8.2 per cent – are not doing. Happily, we happen to be better at the corporate tax game. That is perfectly clear from figures showing that US firms have invested more in Ireland since 1990 ($189bn) than in the four BRIC nations (Brazil, Russia, India and China) combined.
What would happen if we capitulated to the European leaders' demands and stopped creating such an attractive climate for multinationals? What if we buckled under to the bullies and raised corporate tax to 30 per cent? Or even if we surrendered to the bearded begrudgers at home who want to send the multinationals packing because of their lean and hungry business model?
It is unthinkable. We would lose 150,000 jobs. We would see the evacuation of 1,000 companies to the UK, to Portugal or to Eastern European countries.
If they all left, Ireland would be an economic desert with growth non-existent. Gross domestic product would tumble by 31 per cent, according to IDA estimates. Emigration would soar. Ancillary industries would close down. Tax take from the companies themselves and former staff would plunge. The deficit would rocket.
'Our minister for money laundering prevention, Alan Shatter, will confirm to any homeless criminal with full saddle bags that the fortresses of the Irish State leak like sieves'
Like it or not, we are now dependent on multinationals. Perhaps it is an overdependence and we should try harder to redress the balance with increased incentives for indigenous industry. But currently we do not have the luxury of resisting their presence, nor of raising corporate tax.
We in Ireland have a fight on our hands to remain attractive to outside investment. The unexpected attack on our flank from our US friends calls for a robust response, not for explanations. Let Enda tell the United States that it is a victim of its own tax system, not ours. We will not be fingered by Apple or scapegoated by US politicians. The mote is in their own eye.
On the second front, our European allies are plotting a more devious attack. Wait until we seek recapitalisation of the banks from the European Stability Mechanism. The first item on the table will be our 12.5 per cent tax rate. We must not give an inch.