A quarter of GDP from royalties a ‘staggering’ indication of tax avoidance

Sinn Féin MEP Matt Carthy has described new figures detailing the extent of tax avoidance on royalties channelled through the Irish state as “staggering” and an indication of the need for urgent action to impose a withholding tax on royalties. He was speaking in response to the publication today of a report by the European Commission on ‘Aggressive Tax Planning Indicators’.

Carthy said: “This report reveals that a staggering 23 per cent of Irish GDP from 2010-2015 was made up of royalty payments, while the EU average over the same period was just 0.34 per cent of GDP. The report itself describes the Irish figures on royalty payments as ‘extraordinarily high’ and points out that this is a key indicator of tax avoidance taking place in the Irish state.

“The Irish state is identified as a top conduit in the EU for multinational corporations channelling royalties to tax havens, as well as displaying many other indicators of being a top facilitator of corporate tax avoidance. Multinationals shift profits through Irish structures by using payments of royalties or interest that are tax deductible from higher-tax jurisdictions to tax havens with low or zero-tax rates.

“No doubt the government will claim that these figures are from 2015 and earlier, and suggest that reforms implemented since this time have reduced the ability of multinationals to use Ireland to dodge the taxes they owe. But we already know that this is not true.

“It is no surprise that the Irish state is identified as a conduit state as our tax regime does not impose a withholding tax on royalties, with a couple of small exceptions. This was the case in 2015 and is still the case today.

“We also know the Double Irish is still being used by many multinationals who were provided with an absurdly long transition period, and that alternative structures that allow the same tax avoidance schemes have been developed to replace it, such as the so-called Single Malt.

“Research by Christian Aid released in November highlighted the real-world examples of Microsoft and pharmaceutical giant Allergan using the Single Malt structure to divert profits to Malta.

“Since 2015 there has also been a surge in corporations using intellectual property-related tax avoidance schemes. Tax advisors openly advertise that as a result of the capital allowance on intangibles introduced in 2015, 100 per cent IP-related trading profits can be offset in an accounting period, meaning the effective tax rate paid on IP can be reduced to zero.

“The Irish government needs to act now to end the dangerous and unsustainable situation in which it actively markets the Irish state as a tax avoidance hub, and in which our public finances are severely over-reliant on the corporation tax receipts of a handful of multinationals.”