Dan O'Brien: 'Figures do not lie, and our tax regime is not bleeding EU'
While critics point to Ireland being a tax haven, the figures most relevant to the debate suggest that it is not, says Dan O'Brien
Entrepreneur and activist Paddy Cosgrave made waves over the past week. He believes Ireland is a tax haven. He spent a significant sum of his own money on a Facebook campaign targeted at those across Europe who might be most interested in such matters.
Cosgrave argues that international sentiment towards Ireland is being tarnished "by the day" and has called for the tax regime to change - though it is unclear from his utterances and writings what specific changes he advocates.
The businessman joins a lengthy list of critics of Ireland's corporate tax arrangements. Some continental European countries, most notably France and Germany, have long been reproving, as have some international organisations and lobby groups. Here at home criticism has come largely, but not exclusively, from left-leaning activists and groups of that bent.
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One cannot understand the various views on Ireland's tax arrangements without considering the bigger international picture. That picture shows a world with an ever-growing number of multinational companies. It shows advances in information technology which allow vast sums of money to be moved across the world with nothing more than a cheap laptop. And it shows the proliferation of vehicles designed to lower the tax liabilities of entities and individuals.
All of these developments point to a growing prevalence of aggressive tax avoidance - and it is not only the usual suspects on the left of the political spectrum who claim that this is so.
The International Monetary Fund, an organisation not known for its anti-business stance, recently published a paper on global corporation tax issues. It spoke of "concerns regarding tax competition and, more fundamentally, the allocation of taxing rights across countries". Of relevance to Ireland's corporation tax regime and how companies channel profits into Ireland to take advantage of said regime, it highlighted "continued opportunities for profit shifting".
In a world in which almost everything is becoming more globalised, rules and regulations need to follow suit. Human interaction of all kinds and at all times need clear, rules-based arrangements so that the gains can be maximised (for the parties involved and more generally for society) and the costs of conflicts minimised.
Efforts to achieve this in how companies are taxed have been focused on the Paris-based Organisation for Economic Cooperation and Development (OECD). The Irish Government has been a strong supporter of the OECD-focused multilateral approach.
Having got the background out of the way, let's return to assessing whether Ireland is a tax haven.
Counting all profits booked in this jurisdiction and peer countries is a good starting point in that assessment. Figures published by the EU's statistical agency, Eurostat, showed that by one very wide measure of profits, Ireland last year accounted 3.5pc of all profits in the 15 rich, long-standing EU members. On a per person basis, this measure showed profits in Ireland to be three times higher than the EU15 average and higher than in any EU country.
So, a disproportionate share of profits in rich Europe is booked in Ireland. That will surprise nobody, given that attracting the world's leading companies has been at the centre of the country's economic strategy since the 1950s. Having a low corporation tax rate - of 12.5pc - accounts for much of the unusually high profits recorded in Ireland. While some of those hostile to the Irish corporation tax regime advocate pushing the rate closer to the average across Europe - 20pc-30pc - this is not a central aim of most critics. For them, the worst parts of the Irish regime are vehicles and schemes which facilitate avoidance.
It is very difficult to know how much of the profits booked in Ireland are as a result of the use of such mechanisms. But if half of the difference in Ireland's per capita profit tax revenues compared to peer countries is accounted for by what might be called less legitimate mechanisms, the sum involved would amount to €60bn at a maximum by my calculations. With corporation tax rates averaging around 20pc globally, that would mean that the loss to other exchequers could be in the region of €12bn.
And this gets to the crux of the issue. In the grander global scheme of things, €12bn does not amount to a hill of beans. That is not to say Ireland shouldn't be scrutinised, or that critics of the regime may not be at least partially right, but it highlights something lacking in the discussion of global tax avoidance - proportionality.
Given the volume of debate and discussion on the issues, one would be forgiven for thinking that exchequers around the world are being starved of revenues because of industrial-scale tax avoidance. But that is simply not the case.
Amazingly, the debate on corporation tax and avoidance is very rarely informed by what has actually been happening to the amounts of revenue collected.
The OECD's own database shows that if avoidance is happening - and it most certainly is - the effect on governments' fiscal wherewithal has been negligible.
The amounts of corporation tax collected across the 33 members of the OECD has actually trended upwards - slightly - over the decades, both as a percentage of GDP and as a share of total tax revenues. Almost all individual OECD countries have seen increases or stability in both measures of corporation tax. This, to my mind, is the killer fact in the whole debate. If companies were avoiding tax by using havens on a large scale, it would be showing up in states' public finances data. It is not.
These reassuring fiscal trends are also in evidence in the two countries which are most critical of Ireland's company tax arrangements - Germany and France. But they are not well known. In a meeting in Berlin with German civil servants and analysts, the issue of Ireland's corporation tax came up. When your columnist set out the facts to the group there was silence and puzzled looks.
The facts are straightforward. German corporation tax receipts reached €89bn in 2017 (the most recent year for which data is available from Eurostat). That was the highest on record. OECD data for the same year show that profit taxes in Germany accounted for 5.4pc of all tax revenue. That was the highest share in a decade and one of the highest over the past three decades. Profit tax revenues in Germany as a percentage of GDP stood at 2pc in 2017, the third highest level since 1990.
These trends - in the amount of corporation tax collected in cash terms, as a percentage of total taxation and relative to the size of the economy - show that there is absolutely no sign of a downward trend in the contribution companies make to Germany's public coffers.
If corporates and others are using clever accounting practices to shift profits abroad, the overall impact on the German public finances has been marginal.
What about France? That country is even more exercised than Germany over Ireland's corporation tax arrangements - as an anecdote, this writer had dinner with a French politician a while ago and despite my best conversation-changing efforts, three of the four courses were dominated by the subject.
But, again, the facts tell a story that should make the French cooler under their collars. In 2017 the French treasury took in €67bn in corporation tax receipts. That was the highest on record and it amounted to a surge of 16pc in a single year. These profit tax revenues accounted for just over 5pc of total French tax receipts in that year (the same as in Germany) and in line with the share over decades.
Tax avoidance (and evasion) are real problems deserving of the sort of multilateral attention that they are getting.
Without international rules, sooner or later there will be a loss to national coffers. But there is no evidence of that happening on a significant scale internationally.
As with all policies, measures taken need to be proportionate to the scale of the problem being faced.