“Government’s inaction on tax avoidance damaging Ireland’s reputation” – Matt Carthy MEP

Sinn Féin MEP Matt Carthy has said that the government’s inaction on tackling corporate tax avoidance is damaging Ireland international reputation.  Carthy was speaking following the adoption of the TAX3 special committee’s final report in the European Parliament in Strasbourg today, Tuesday, which labelled Ireland, Cyprus, Luxembourg, Malta and the Netherlands as tax havens within the EU.  The report “calls on the Commission to currently regard at least these five Member States as EU tax havens until substantial tax reforms are implemented”.

Speaking from Strasbourg, Carthy said: “It is a significant indictment of the government’s lack of meaningful action on corporate tax avoidance that the official position of the European Parliament is now that Ireland is a tax haven.

“Once again, international newspaper headlines will be characterising Ireland as a tax haven. This is doing serious damage to our reputation as a destination for investment, and it is causing anger among the leaders and the ordinary people of countries around the world who see us as siphoning off the funds that they want to see collected by their public revenue agencies.

“It is deeply unfair for the Irish people who pay their taxes only to see massive corporations who benefit from public expenditure on education and infrastructure to pay next to nothing to Revenue.

 “Throughout the mandate of this TAX3 special committee, I have questioned Google’s representatives who confirmed to me that the company is continuing to use the Double Irish with Bermuda – shifting billions of its profits there where they go entirely untaxed.

 “My group in the Parliament has also investigated Apple’s new tax arrangements following the state aid investigation, and found that with the help of the Irish government, Apple has created a new structure that has allowed it to gain a tax write-off against almost all of its non-US sales profits. This has allowed it to pay as little as one per cent tax on its profits in the EU.

 “The reality is that despite government rhetoric on being serious about ending tax avoidance in Ireland, it continues to actively facilitate profit-shifting.  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% IP-related trading profits can be offset in an accounting period, meaning the effective tax rate paid on IP can be reduced to zero.  Our tax regime also does not impose a withholding tax on royalties, with a couple of small exceptions.

 “Last year the Public Accounts Committee published an important report on corporate tax in Ireland, finding that our over-reliance on a handful of tax receipts from multinationals poses an ‘unacceptable level of risk’ to our economy.

 “The government’s approach of doing the bare minimum to combat tax avoidance is indeed posing an unacceptable risk to both our economy and to our reputation.”  ENDS

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The text that was adopted calling Ireland a tax haven is below: 

Recalls that the Commission has criticised seven Member States – Belgium, Cyprus, Hungary, Ireland, Luxembourg, Malta and the Netherlands – for shortcomings in their tax systems that facilitate aggressive tax planning, arguing that they undermine the integrity of the European single market; takes the view that these jurisdictions can also be regarded as facilitating aggressive tax planning globally; highlights that the Commission has acknowledged that some of the aforementioned Member States have taken measures to improve their tax systems to address the Commission’s criticism; notes that a recent research study has identified five EU Member States as corporate tax havens: Cyprus, Ireland, Luxembourg, Malta and the Netherlands; stresses that the criteria and methodology used to select those Member States included a comprehensive assessment of their harmful tax practices, measures that facilitate aggressive tax planning and distortion of economic flows based on Eurostat data, which included a combination of high inward and outward foreign direct investment, royalties, interests and dividend flows; calls on the Commission to currently regard at least these five Member States as EU tax havens until substantial tax reforms are implemented; 

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The recent research study being referred to is a new report from Oxfam published on March 7 called, Off the hook: How the EU is about to whitewash the world’s worst tax havens.

Some key points from the Oxfam report:  

EU blacklist 

The EU blacklist was intended to be a robust instrument for tackling tax avoidance, but that is currently hard to believe. Singapore, one of the most aggressive tax havens, was astonishingly left out of the first EU blacklist in 2017. Now the EU is about to omit, among others, the British Virgin Islands, the main tax haven featured in the Paradise Papers, and Bermuda, where in 2017 Google shifted profits of approximately $23bn. This cannot be defended, as there is no convincing evidence that profit shifting to these tax havens has ended. 

Reference to Gabriel Zucman’s research from 2018 that identified Ireland as the worst tax haven in the world 

The authors of the paper The Missing Profits of Nations, published in 2018, estimated that in 2015 about $600bn in multinational foreign profits were shifted to tax havens. Of these profits, 30% were moved to tax havens within the EU. The paper further estimates that 80% of the profits shifted from EU countries end up in EU tax havens, primarily Ireland, Luxembourg and the Netherlands: in 2015, these three countries accounted for a total of $210bn in profit shifting. 

The three criteria the EU (supposedly) uses to decide who goes on the blacklist  

  • Criterion 1. Tax transparency: Countries are exchanging information automatically and on request; countries are part of the multilateral Convention on Mutual Administrative Assistance in Tax Matters. 
  • Criterion 2. Fair taxation: Countries have no harmful tax practices; countries do not facilitate offshore structures or arrangements aimed at attracting profits that do not reflect real economic activity in the jurisdiction. A zero percent tax rate is used as an indicator. 
  • Criterion 3. Implementation of anti-BEPS measures: Countries apply or commit to the OECD’s minimum standards against base erosion and profit shifting (BEPS).  

The most important aspect of the blacklisting process is the fair taxation pillar. 

Oxfam analysis of EU tax havens

In Oxfam’s 2017 report on tax havens, four EU member states were found to fail the EU’s own criteria.95 This year, Oxfam has assessed all 28 member states again using the EU’s own criteria, and has identified five countries that would fail on the basis of fair taxation. These five countries have harmful tax practices and attract a disproportionate amount of profits. 

All five pass Criterion 1 and 3, but fail the most important criterion, fair taxation (absence of harmful practices). 

Ireland, closing old loopholes while opening new ones 

Media reports indicate that US multinational corporations have started to change their tax structures, with the EU blacklist pushing them to move their intangible assets from traditional tax haven territories in the Caribbean, like Bermuda and the Cayman Islands, to countries such as Ireland and Singapore. 

The full extent of these transfers was discussed recently in the Irish parliament, where it was disclosed that between 2014 and 2017 intangible assets to the value of approximately €300bn were transferred to Ireland. 

Ireland has incentivized companies to relocate their intangible assets by means of tax reliefs that allow them in many cases to reduce their liability to zero. 

It is estimated that up to €1 trillion in intangible assets could be transferred to Ireland in the next few years. 

For companies that moved assets to the country between 2015 and 2017, Ireland may, in effect, be a ‘no-tax jurisdiction’.  

Meanwhile, companies that move intangible assets to Ireland in the future will be able to take advantage of reliefs that could potentially give them an effective tax rate as low as 2.5%. The cost to the Irish taxpayer of these reliefs in 2016 alone was a massive €4.46bn