Is Ireland a tax haven? Post author By Stephen Kinsella Post date March 7, 2012 I think it is, Brian Keegan of Chartered Accountants Ireland thinks not, and I respond to Mr Keegan’s piece here. Categories In Uncategorized 120 Comments on Is Ireland a tax haven? By Stephen Kinsella Senior Lecturer in Economics at the University of Limerick. View Archive → ← Target 2: Liquidity and Capital Flight → Percent versus Percentage Points 120 replies on “Is Ireland a tax haven?” Back in late 2007 early 08 I was naive enough to believe some corporate tax deal would be done in exchange for a debt write off. How wrong I was. There are just too many powerful people both on these Isles and both continents with skin in this global slave / credit arbitrage game. The productive enterprises are becoming banks or at least elaborate safety deposit boxes holding onto cash while their customers no longer full with credit grog have little units of exchange meaning Heniken must get into the tourist business down at Beamish & Crawford hoping for a few Asian visitors to fill their till while more rational communal fixed capital investment is put on hold as Goverments have no money……… Its always been a mad world – but its clear the cycle is broken. Another example of an Economist (Mr Kinsella) talking about a subject (Tax) he clearly doesn’t doesn’t know much about – but says something controversial in order to get a bit of media attention. His CV suggests that he has never published any research of any significance in the field of taxation – yet of course because he’s an economist he’s an instant expert on taxation. The reality is – he wants to increase his media profile – get a spot on Vincent Brown maybe. It would just be pathetic if it wasn’t so dangerous for Irelan’s international reputation. These are the facts. Ireland clearly isn’t a tax haven – a tax haven is a country where you pay little or no tax. The marginal personal income tax rate (PIT) in Ireland is over 50%. OK so Ireland has a Corporation Tax Rate (CIT) of 12.5% – lower than G7 economies (but small peripheral countries generally have lower rates than big core economies) but not out of line with many EU member states (Poland 19%; Lithuania 15%) and not the lowest rate in the EU either (Cyprus and Bulgaria have 10% rates). Ireland collects about the average in CIT compared to other EU countries. Ireland is on the OECD white list for tax compliant jurisdictions. Ireland has been given a glowing bill of good health from the Global Forum on Tax Transparency. Ireland has over 60 bilateral tax treaties with other countries such as the US, Germany, UK – none of who regard Ireland as a tax haven. These are just some of the facts but national newspapers like a bit of controversy and probably won’t have published Mr Kinsella’s article if he stuck to the boring facts. If you would like to read a paper with facts about Ireland’s tax rate rather than fiction see the attached link: taxpolicy.gov.ie/wp-content/uploads/2011/03/09.16a.pdf You lost this one, Stephen. Out of your league. You should stick to your knitting. Why is it important if Ireland or anywhere is or is not a tax haven? If each country has a different tax code, wouldn’t each country be a tax haven for certain kinds of investment, wealth and income due to differences is in the tax code? By way of distraction, this detailed report on the latest kite being flown by Sarkozy on a minimum level of taxation for the largest French companies and the reasons why it cannot be made work. http://www.huffingtonpost.fr/2012/03/07/impot-minimum-sarkozy_n_1325963.html?ref=fr-nicolas-sarkozy Sarkozy has, of course, already pushed through a financial transactions tax in the dying dyas of his adminsitration and, irony of ironies, the SPD is insisting on the introduction of a similar tax in Germany as the price for supporting passage of the fiscal pact. This is an absolute red line for Merkel’s government partners, the FDP. To be continued… Obama is also trying to catch the wave of popular reaction in his proposals with regard to company taxation but whether or not they will ever be adopted is another matter. Yeah stick to your knitting and leave the real men talk about, eh, tax policy. Christ almighty @Joseph, it’s funny, when you say something people don’t like, the first retort is something like you’ve just posted. Vitriolic, abusive, and without addressing the substance of my points at all. Please note I could just delete your comment on these grounds, but I’m not going to, people can make their own minds up based on my arguments, Mr Keegan’s, and my reply. I think my reply to Mr Keegan on my own site shows the kind of research I’ve done to write these pieces. Clearly you haven’t done your research Joseph, or you’d know that a sentence like “Ireland clearly isn’t a tax haven – a tax haven is a country where you pay little or no tax.” is essentially meaningless. @Paul W, I really did trying knitting once, but honestly it didn’t suit me. @Joseph, one more thing. I’m currently working on an INET-sponsored macroeconomic model for Ireland. This is new research, and to model the Irish economy properly, you have to understand transfer pricing. So it’s my research that has led me to this question. Why stephen do you use a 2007 eapn report on the Ireland tax wedge in your comments on your page. This is clearly outdated data. As an aside, using this data without looking at all taxes including indirect taxes makes the comparisons meaningless. As a small example (albeit not complete), Denmark has the highest taxation but have little or no medical costs to their citizens. All government services are funded centrally. It is paid for in the tax wedge. We are a small outlying country in Europe and need incentives to attract jobs to this isle. If we did not have a lower corporation tax then the jobs would be in France and Germany with its road infrastructure to all of Europe. We quite simply cannot compete with regard to transport infrastructure and tax is our way of competing. That hardly makes us a tax haven. @Damien, sorry, which report is this? I cite a 2010 US Congress report, and 2009, 2005, and 1994 published papers. Of course you are correct, more up to date references would be ideal, but these published studies don’t move as fast. Actually that was the point of my original article–we need all the cash we can get, we need to be aware of the threat of the IRS closing off tax loopholes for multinationals represents. @ Paul W Not so fast mate. Stephen’s paper was clearly about corporate taxation, rather than individual taxation. Mr Keegan began by setting up a straw man. He goes on to say: ‘The second characteristic of a tax haven is a lack of clarity. How clear is the tax system to all those who pay tax? Is there favouritism, or anywhere to hide? Ireland is almost unique in that we publish, on a quarterly basis, the names, addresses and businesses of tax defaulters. Thirdly, real tax havens don’t exchange information about taxpayers efficiently with other governments. Ireland does’ Ireland is a real friendly place. Our auditors and revenue wouldn’t dream of looking too far into those reeeeeeallly complex internal company accounts. That there’s all commercially sensitive, ya see. The tax arbitrage is arranged though the transfer pricing, which is known only to the vertically integrated transnational enterprise. So what information is there to exchange between tax jurisdictions ? Nothing to see move along. There is a need to go back to first principles on this topic. http://ec.europa.eu/taxation_customs/taxation/company_tax/harmful_tax_practices/index_en.htm http://www.oecd.org/topic/0,2686,en_2649_33745_1_1_1_1_37427,00.html Starting the discussion by stating that Ireland is a tax haven but that people are somehow afraid to admit it is not a good point of departure. In terms of the current international situation with regard to tax issues, Ireland is most emphatically not a tax haven. @ Stephen Your point re IRS closing off loopholes didn’t register. The minute you headlined “Tax Haven”, you were on the wrong track. Your piece became negative and sensationalist. @PQ “tax arbitrage is arranged through the transfer pricing”. Sorry /no offence, but that’s rubbish. It’s pointless to quibble about the meaning of such a term, as if meanings were universal constants. Let’s see how it is actually used: Business Week: “The Tax Haven That’s Saving Google Billions.” Business Insider: “Ireland is a tax haven. On the PricewaterhouseCooper list of tax-friendly nations, it ranks seventh, right between Saudi Arabia and Oman.” Politico: “Ireland third most popular tax haven for FTSE100 companies.” This particular horse bolted a long time ago. Will shutting the stable door make any difference now? @Paul W. Were you too busy knitting to actually read the piece line by line? Because that’s sort of the point of writing an article. Also, writers don’t write headlines in their articles, editors do. @Kevin, I guess my point in the original article was to say that as a tax haven (regardless of the precise definition one chooses) Ireland has a set of threats it needs to be aware of, one of which is the IRS, oddly. It is a question of who will make the first move and how. Sarkozy and Hollande are both citing unfair tax competition and promising to take steps to address the problem. http://www.lesechos.fr/economie-politique/france/actu/0201935837034-impot-minimum-comment-le-candidat-sarkozy-compte-proceder-299242.php Obama is also promising to address unfair tax competition. http://www.startribune.com/business/139958423.html Who will get there first? @Stephen, I found your article clear enough and the point you make is very sound. My comment was intended for the Brian Keegans of this world, who evidently think that quibbling about definitions accomplishes something. As Paul Krugman said to his critics in another context (the liquidity trap), call it a banana if you want to. The problem remains. @ KD So? Tax competition, just like any other form of competition, is inherent in international business. Nothing to be ashamed of in competing, legitimately. “Tax Haven” is a highly negative phrase in the tax space. Implies, actually signals (screams), illegitimacy. Stephen’s use of the term lost him the argument on this occasion. @Paul, you got it wrong. You’re supposed to say: my hair is a bird, your argument is invalid. @ Stephen 1. what do you mean by a tax haven, contextually? Is it necessarily a bad thing, as most people would initially consider it to be? The OECD, for instance, has an interpretation, and, as you noted, a color list. We’re on the white list, which appears to be acceptable to the US government at this point. 2. you contend in your rebuttal that the “burden of proof” is on Mr Keegan, and then you end it with “prove me wrong”. Aside from the question as to just why Mr Keegan is the one who needs to do the disproving, can such a subjective argument really be “proven”, or “disproven”? When you are setting economics exams for your students, do you ask them to “prove” a subjective argument, or simply ask for a reasoned and supported opinion? 3. It aint just tax why they come here. http://www.mop.ie/__data/assets/pdf_file/0005/9887/Investing-in-Ireland-A-survey-of-foreign-direct-investors.pdf I think yee guys are missing the bigger picture here – we had a global equities boom in the 90s simply because of tax / wage arbitrage using consumer credit to sustain a artifical demand in a very very nasty global free trade system. Very little new wealth was created – it was merely transfered and indeed in my opinion destroyed. To base your entire Industrial strategy on having nice friendly but Treacherous American Presidents in charge is foolish in the long run. What goes around comes around. http://www.youtube.com/watch?v=Rkgx1C_S6ls The global investment / demand loop is broken because of this. Why are Corporations holding on to cash ? @ Kevin Donoghue That Ireland is an attractive location from a tax point of view is beyond question. How this situation is described by the media is not the significant issue (except, perhaps, in terms of the publicity associated with whatever description is adopted). What matters is the degree of common ground and rules that have been arrived at internationally and how Ireland relates to them. There are no immediate problems on that score. The changes that Obama has in mind may come about. But that issue has to be viewed in the context of a correct assessment of where exactly the international debate stands as it is very difficult for any one country to get ahead of the pack (as Sarkozy and, perhaps, Merkel, may be about to find out). @ Paul W ‘Tax arbitrage is arranged through the transfer pricing’. Perhaps that is not the way to put it. I don’t claim to be an expert, but your arbitrary put-down has my nose twitching. http://onlinelibrary.wiley.com/doi/10.1111/j.1467-646X.2011.01052.x/pdf Kevin is right (Donoghue that is). It is silly to get into an argument about whether Ireland is or is not a tax haven since, despite it being a matter of definition, it is a somewhat emotive term. Its rather like arguing whether there is or isn’t a recession, as if someone can establish what that means. What hinges on whether Ireland is or isn’t a tax haven? To my mind Stephen’s desire to proclaim us a tax haven is rather like the claim in “The Commitments” that Northsiders are the “blacks of Ireland”: there is an element of truth in it but it is not especially interesting either. The interesting empirical question is: what is the effect on economic activity of our corporate tax system ? I have seen some international system estimates on the first question (i.e. of tax systems on FDI) but I don’t think the Irish case has been well studied (partly as it is not easy). Rather than getting into essentially theological discussions of are we/aren’t we a tax haven, why not estimate the relevant elasticities? This might be something the new Government Economic Service could look into. Then we might actually know whether our much vaunted low corporate tax rate is worth fighting for. Hmm, so never thought id see myself commenting on this site but it is strange times we live in alright. So here goes @Joseph O Toole “Global Forum on Tax Transparency” is an inhouse blue peter badge maker when it comes to grading western liberal market economies. @George The international perspective is central to understanding tax flows and tax flights. In fact there can be no understanding of the development of capitalism and particular instruments of tax avoidance, collections etc via a prism of the nation state alone. The whole pull on the Green Jersey is meant as a literal or even metaphorical thing. Merely a nod to something called society thats useful to enounce every once and a while when the shit hits the fan for us ordinary PAYE plebs @Damien Facebook Facebook Facebook. seriously Facebook some snippets within the last 6 months Tax Havens: Ireland is Europe’s top corporate tax haven Finfacts Feb 16 – “Microsoft explained to the US Securities and Exchange Commission (SEC) last year that its declining effective tax rate … resulted from using Ireland, Puerto Rico and Singapore as regional sales centres for routing profits, because of their low-tax regimes.” Hat tip: http://visar.csustan.edu/aaba/jerseypage.html From the Tax Jurisdictions Secrecy reports which you can download here http://www.secrecyjurisdictions.com/jurisdictions Ireland hosts so many EMEA operations of Facebook, Google and hundreds of other because of the sunny weather and guinness right? Or the high calibre of university graduate with degrees? No, its because the state is run as a laundry. People have been researching and working on this for years, its nothing new. Theres a global movement called the tax justice movement. We operate here in Ireland too. We publish well researched material like this http://debtireland.org/resources/publications/driving-the-getaway-car/ Some recommendations Recommendations –On a national level 1. Adjust the transfer pricing regime to grant powers to the Revenue Commissioners to adjust transactions which boost Irish profits as well as those which deplete them. 2. Maintain vigilance on companies operating in Ireland without a large economic presence, particularly those with large intra-group transfers. 3. Continue to provide a steady and predictable stream of aid to Southern countries, targeted at measures which improve the state capacity to collect revenue. 4. Continue to set an international example of the links between tax and accountability and governance by working towards a situation in which all Irish workers in Southern countries pay tax locally. 5. Abolish the tax exemption on patent royalty income, as recommended by the 2009 Commission on Taxation report. Recommendations -On an international level 6. Continue to work with the taxing authorities of Southern countries to expand their capacity following the model established with Rwanda. 7. Negotiate Tax Treaties with Southern countries on a multi-lateral basis using the UN model as the template. 8. Use Ireland’s influence within OECD, EU, World Bank and IMF to support Southern countries in designing and strengthening their own tax systems and in continuing to impose trade tariffs and customs dutieswhere necessary. 9. Enhance the level of information exchange between the Irish Revenue and other taxing authorities. 10. Proactively advocate for the introduction of country by country financial reporting formulti-national corporations by the International Accounting Standards Board (IASB). 11. Strengthen Ireland’s position on international tax evasion through enhanced tax transparency and improved measures to combat capital flight. From the secrecy report mentioned earlier “On the tax side, three main elements stand out. The first is the most often cited as part of the “Celtic Tiger” economy: Ireland’s 12.5 percent corporate tax rate on certain types of corporate income, which has encouraged some classes of corporate activity to relocate to Ireland (alongside other tax rates for other types of activity.) The second is Ireland’s historical near-absence of transfer pricing rules, which have in effect turned Ireland into a prolific source of loopholes in international tax, most notably helping U.S. corporations pay far less than the headline 12.5 percent rate. The third element, essential but overlooked, is Ireland’s membership of the European Union. As well as granting political stability and special access to European markets, membership has helped keep Ireland off tax haven blacklists that would apply to classic tax havens such as the Cayman Islands and Bermuda; many countries that would apply withholding tax on interest paid to traditional tax havens do not apply those to Ireland because it is falsely classified as “onshore”. As regards the International Financial Services Centre (IFSC,) its extraordinary growth stems in large part from its ‘anything goes’ approach to financial regulation, along with other classic ‘tax haven’ offerings such as ease of incorporation and company law very favourable to multinational corporations. Ireland, as one account puts it, “began to see itself as an outpost of American (or Anglo-American) free-market values on the far edge of a continent where various brands of social democracy were still the political norm.” Ireland enjoyed a tremendous “Celtic Tiger” boom, built on debt and an unsustainable property bubble, followed by a spectacular, debt-laden bust from about 2008 onwards, substantially worse than that which has affected most of its trading partners. Ireland hosts over half of the world’s top 50 banks and half of the top 20 insurance companies; in 2008 it hosted about 8,000 funds handling €1.6 trillion of assets; the Irish Stock Exchange hosts about a quarter of international bonds. In 2008 IFSC investment was equivalent to about 11 times Ireland’s GNP; many toxic developments in the ‘subprime’ markets of the U.S. and elsewhere can trace their lineage back to Ireland. Corporation Tax Ireland has used tax as a central plank in its strategy to attract foreign multinationals. The strategy first emerged in 1956 with the Export Profits Tax Relief (EPTR) exempting certain manufactured goods exports from income and corporation profits tax. This was pushed through by John Costello, the Irish Taoiseach (head of government) in an October 1956 announcement that he had not discussed with other members of the government, and in the face of objections from the Irish Revenue – relying instead on advice from his son-in law Alexis Fitzgerald and from personal advisers” If you have the stomach you can read the whole thing here http://www.secrecyjurisdictions.com/PDF/Ireland.pdf @ Eoin, Yeah, on reflection I could have worded that last part better. But the burden of proof thing is important: I’ve marshaled a fair bit of evidence that we do help large multinationals pay less tax than they otherwise would, and we have a set of institutional arrangements that facilitate such behavior. Mr Keegan contends we don’t, except he acknowledges we do. In my original piece, my point was that this is a comparative advantage we could lose rather quickly. On the proof thing, I do both in exams actually, it depends on the subject, currently financial economics vs. international monetary economics. Some questions require reasoning and evidence, others flat out ‘proof’ as things get more mathematical. I think I’m with Brian Keegan on this one. Ireland is not a tax haven. Ireland does appear on some tax haven lists but it this is rather unfair. Following the paper trail this seems to stem from the Hines and Rice (1994) article. This is from the QJE so it will have a big impact. Hines and Rice put Ireland on their tax haven list based on a similar list used in a 1987 book by Glautier and Bassinger, A Reference Guide to International Taxation. Unfortunately the paper trail stopped there as I don’t have access to this old book (though I did suffer through an undergrad textbook by Glautier). From what I can gather this list comes from an Internal Revenue Service (IRS) report from the early 1980s. Without access to this report it is impossible to tell why Ireland was included as a tax haven. The Hines and Rice paper has been very influential and has kept Ireland on many tax haven lists, including the 2010 report for the US Congress. To me it seems unfair to put Ireland on a tax haven list because of a now obscure finding that was published 30 years ago. The OECD regularly update their list(s) of tax havens and don’t simply base them on lists published elsewhere. According to the OECD Ireland is not a tax haven. @Seamus, there are multiple measures and definitions, including the IMF-FSF version, in which Ireland appears as well. The 1994 Hines paper was very influential, but it is only one of a series of papers on this issue. @ Stephen my point about the exams was rhetorical – of course you ask for proof, in mathematical questions. But this aint a mathematical question. On the bigger issue, your rebuttal seemed to be “Ah you know what i meant, don’t hide behind definitions, and there’s lot of opinion out there backing me up”, which is fair enough, but as someone above said, labelling someone a “tax haven” can have serious implications, and taxation is a legal field, more so than accounting (which is self regulated to a certain degree), so definitions are important. Legally Mr Keegan is probably right – we have not been labelled as a flagrant tax haven by the US yet, which would warrant a response. You are probably right in the sense that we have many of the classic characteristics of a tax haven, which could put us in the spotlight, but it seems like us having only some of the characteristics would seem to keep us on the “good” white list for now. So unless you’re willing to actually spell out what you mean by a “tax haven” (where does tax competition end and havening start, for one), i think its dangerous to label us as one. If people want to concentrate on persuading Stephen Kinsella to avoid emotive terms that’s fine. But the risk he is flagging isn’t going to go away. Also, none of us can hope to stop Larry Summers from saying things like this: Can the observation that Ireland, Bermuda and Luxembourg are three of the five jurisdictions where the US corporate sector earned the most profits reflect anything other than rampant tax sheltering? Anyone who doubts this should ponder the fact that in 2007, US corporate profits in Bermuda totalled 646 per cent of Bermuda’s GDP. The treatment of profit incentives paid to investment operators who do not use their own money but simply receive the “carry” as they invest other people’s money is another example of an inappropriate provision. http://www.ft.com/intl/cms/s/2/38274f48-5e4f-11e1-8c87-00144feabdc0.html#axzz1nYYTOBDp @Eoin, if it went to court tomorrow, I’d pick a definition that included us, as precisely as required, either from Tax Justice or FSF-IMF perhaps. I think it’s dangerous for us to proceed as if we aren’t a tax haven. It is a bit like policy makers not noticing our pharma exports are about to fall off a funding cliff–it’s an exigent threat to our recovery we should take account of. I take Kevin Denny’s point that this is all a bit theological, but the labeling really isn’t the core of my argument to be honest. It’s the features and the real economic impact that concern me most. I read somewhere that we have bilateral tax agreements with 64 countries…surely that leaves us outside the commonly recognized “tax haven” Designation. After all, if any country has a problem with our tax regime they can renegotiate their agreement with us. @Stephen, I think the Financial Stability Forum report was concerned with Offshore Financial Centres (OFCs) rather than pure tax havens, though undoubtedly there is a large crossover between the two. Ireland qualifies as an OFC primarily because of the presence of the IFSC. Again, I think it is unfair to classify the entire country as a tax haven because there happens to be a large financial services industry in the country. The FSF report did not consider the broader economy. @Seamus, the definition dance can continue, but I’m off to bed! Dr Kinsella states above that he would take the definition of tax haven used by the Tax Justice Network. Well, according to a report from Tax Justice, the USA is a tax haven, see link to Daily Telegraph article below. This argument is becoming truly circular ! http://www.telegraph.co.uk/finance/personalfinance/offshorefinance/8805988/Tax-haven-activity-rife-despite-G20-crackdown-promise-says-Tax-Justice-Network.html Don’t let the three-letter anagrams (TLAs!) invade your dreams. IMF, FSF, OFC, IRS, IMF. Your thread has prompted an avalanche of them! How many noticed a full page ad in the New Yorker Oct 2012 p.35 with MSNBC media celebrity Ed Schultz proposing the american jobs, manufacturing american products, in america, argument. Tax Haven will be irrelevant when the Americans insist on ‘made in america by americans’ which soon they will. Ireland’s tax breaks don’t exist in a vacuum. Since when will Ireland have a choice about any of this? Bloomberg and others reported last year that Google was using Ireland to avoid taxes. This allegation is harmful to Ireland as it encourages foreign jurisdictions to legislate against us. It is also false. I have uploaded the most recent Google Ireland Ltd published accounts. pg 16 details profits and corporate taxes paid. turnover: 10.1bn pre tax profit: 18.5m 12.5% corp tax: 2.3m Clearly the CT rate is not important in attracting Google to Ireland. The profit is low because Google pays most of its turnover as a royalty fee to a Dutch company which then remits the money to Google Bermuda. This could be done from any country in the EU and is unrelated to Ireland’s tax governance. structure or rates. Google’s 10bn turnover is not inflating our GDP figures as royalty payments are treated as imports for GDP accounting purposes. Google’s search technology is licensed from Bermuda where zero corporation tax is payable. ‘Tax haven’ is a pejorative rather than a useful category. Ireland is not an OECD-FATF offender. By contrast, the US allows anonymous owner/directors for Delaware corporations. This is unthinkable in Ireland. Ireland’s effective corp tax rate is equivalent to the rates in the accession countries. So the argument that we are unfairly competing within the EU is void. Demanding your adversary prove a negative is the “Russell’s Teapot” approach often employed by religious types. It’s a fallacy to claim that because most people believe something is true, it is. Intentionally not quoting an economist or academic, but Ed Shultz of MSNBC form the New Yorker ad mentioned in my previous post “We’ve told American workers they’re not valuable anymore, that it’s better to do it overseas than ist is right here. That’s wrong.” Ignore the power of US popular sentiment at your peril According to the British charity Christian Aid, the UK is a tax haven http://www.christiantoday.com/article/christian.aid.unveils.list.of.most.secretive.tax.havens/24507.htm Exactly who isn’t a tax haven in someone’s eyes? @Stephen Kinsella I think it’s a fair critique of your original article that it fails to mention that corporate profits are subject to taxation upon repatriation. – EH Corp (located in USA) owns EH Ltd (located in Dublin). – EH Corp successfully shifts $1m earned in the USA to EH Ltd, and therefore only pays 12.5% tax on it to Dublin, avoiding the USA’s 35% tax rate. They pay $125k in taxes to the Irish government, but would have had to pay $350k to the IRS. – But when EH Ltd repatriates the remaining $875k back to the USA, it is then subject to US corporate tax law. Specifically the IRS expected EH Corp to pay $350k in taxes, saw that it only paid $125k, and demands the remaining $225k be paid to them. I think your article gives the impression, typical in the media, that this remaining $225k does not get paid at all. The main use of transfer pricing is that the tax is paid *on repatriation*. This allows firms to e.g. earn interest on profits not yet repatriated, but not avoid the liability altogether. You cite Jim Hines repeatedly in your piece. As luck would have it, Jim taught me. Obviously I can’t speak for the man but I think it’s correct to say that although he does count Ireland as a tax haven, he doesn’t think transfer pricing is all that important because the remaining liability is ultimately due to US tax authorities. I think that it is legitimate to term a country that facilitates significant ‘tax haven’ type activities for foreign companies and individuals, a tax haven. The OECD’s membership of 34 countries, mainly comprises rich countries and of course the likes of Switzerland and the Netherlands insisted in the 1990s that they would not be termed tax havens. Under pressure from the US and with 11 of its banks under siege, the Swiss House of Representatives this week changed a law to make it easier for the US to target tax evasion (the Swiss distinguishes between tax evasion and fraud). At the corporate level, Cisco Systems, the Internet gear company, books half it global profits through a small Swiss subsidiary. The Netherlands protested in 2009 when the Obama Administration included it along with Ireland in a group of tax havens. The Wall Street Journal said at the time that the Netherlands is also the fourth-largest foreign investor in the US. So it seems or is it? The Netherlands has 20,000 mailbox companies; it is a conduit for trillions in capital flows and Facebook recently registered a mailbox company. It’s address is at temporary offices rented out by the Regus group. The Dutch also facilitate the world’s extractive industries (many of course operating in dodgy countries) as the country does not put details of trusts on public record, require company accounts or beneficial ownership to be publicly available Ossian Smyth above refers to royalties. These are a charge but Google sales revenue is an amalgam of revenues from several countries. Google Ireland is owned by Google Ireland Holding, an Irish company, managed in Bermuda and owned by Goggle Bermuda. It operates from a law firm in Hamilton. The transfer of IP to Bermuda to collect royalties, is effectively a fiction. Ireland’s royalty income is about 4% of its royalty payments – – so most of the traffic is one way. Brian Keegan has chosen to ignore the inconvenient facts that Obama’s minimum tax proposal or the European moves towards a consolidated tax base, reflect a development supported by facts that there has been a huge shift of profits by US companies to low-tax jurisdictions in the past decade. Microsoft confirmed to the US SEC last year that it was using regional centres to book revenues. In 2002, US companies reported $149bn of profits in 18 tax-haven countries, up 68% from $88bn in 1999 according to official data. This compares with a 23% increase in total offshore profits earned by US multinationals during the same period – – total profits of US multinationals’ foreign subsidiaries around the world stood at $255bn in 2002. Microsoft subsidiary Round Island One Ltd, which operates from Matheson Ormsby Prentice, a Dublin law firm, did at least pay the Irish government $300m in corporation tax in respect of 2004 ( it is now an unlimited company and its data is protected). The Wall Street Journal commented that “Microsoft routes the license sales through Ireland and Round Island pays a total of just under $17m in taxes to about 20 other governments that represent more than 300m people and $300m in taxes to a country of just over 4m.” However, it appears now that while other countries are cheated of legitimate tax on profit on sales within their borders, Ireland now gains little from the facilitation but risks undermining legitimate tax competition. Imagine the outrage if Tesco Ireland booked its Irish sales in a Swiss canton to avoid Irish taxes? Profits may never be repatriated to the US unless lobbying for another amnesty is successful. US federal taxes as a ratio of GDP are the lowest in 60 years. http://blogs.reuters.com/felix-salmon/2010/12/06/chart-of-the-day-u-s-taxes/ US corporate tax as a ratio of GDP at 1.8%, was the lowest in the OECD area in 2008. Corporate taxes as a ratio of federal tax revenues were above 25% in 1950; and fell from 32% to above 5% in 1984. There maybe a change in the ratio of unincorporated businesses overtime but note the trend. @ Michael Hennigan The “bringing home of american jobs” is being billed here, not as a tax issue, nor a revenue issue, but a broader socio-economic issue. Watch it grow. Focusing too much on the taxation aspect of multinationals in Ireland is a mistake. They will pull the rug out and nobody will utter the word tax once. Watch. @ MH “Imagine the outrage if Tesco Ireland booked its Irish sales in a Swiss canton to avoid Irish taxes?”. The wider point is that Tesco is a MNC with a presence in multiple jurisdictions. Should it pay UK tax on all its worldwide income based on the fact of its UK HQ alone? Ditto for the US MNCs. The general tax principle of the US code is that all income is US taxable, followed by relief or mitigation for double taxation (CFC equalisation of foreign tax rate with domestic tax rate is part of this, as is tax deferral on active /real foreign income, etc….). The US MNCs in Ireland make huge (real) profits outside the US. Should these profits be taxable in the US simply on the basis that they have US HQs? The point is that the consolidated accounts of these MNCs include non-US source income. In recent years, their income growth has been overseas, which is why it is wrong and simply populist to say “that there has been a huge shift of profits by US companies to low-tax jurisdictions in the past decade”. That is not a fact that you or obviously the IRS can easily substantiate. Which is why the US put its own 5% taxed repatriation scheme in place a few years ago and are now looking to try to take a bigger slice of the pie (of offshore-generated taxable profits). Tax competition is a reality and comes in many forms and grey areas. It has many valid, positive motives. Sorry, but there are no absolutes in this area…Your statement that Ireland “risks undermining legitimate tax competition” is totally exagerated and suggests that Ireland is the centre of the universe in international tax competition /tax policy. It is not. Ireland has done extremely well in charting its course in this arena by staying well within acceptable international tax parameters and standards. As it has done so, it has built substantive, operating industries, lifted the international expertise of its workforce(s), and created an enviable FDI dynamic for itself, the value of which is clearly demonstrated in these straitened times. Obviously, it is a constant challenge to stay competitive and there are threats and challenges. All very normal…..so less of the negativity. @ Paul W …..so less of the negativity. So who are you? You seem a like a throwback to the bubble period when vested interests reacted in a similar manner to anyone who dared question the status quo. You provide a lot of spiel but you have no interest in the facts. It is OK to book revenue arising in one country in the non-consolidated accounts in another country? So what gravy train are you on? it is wrong and simply populist to say “that there has been a huge shift of profits by US companies to low-tax jurisdictions in the past decade”. That is not a fact that you or obviously the IRS can easily substantiate. Really? http://www.bea.gov if you’re interested in checking. According to the Bureau of Economic Analysis (a US government agency), in 2005, US multinationals’ units in Ireland, reported profits that were twice as large as the profits of all US affiliates in Germany, France and Italy combined. In effect each employee of a US multinational in Ireland was worth more than $539,000 in profits, while their counterparts in Germany brought in about $16,000. Reported profits were $13bn in 1999 and FDI employment peaked in 2000. There were no big scale greenfield projects after that but profits almost quadrupled by 2005. The 2004 amnesty was to bring back so-called ‘trapped cash’ following lobbying of Congress but it didn’t work as intended – – did you know that? From what I can deduce from various announcements by foreign politicians is that they perceive Ireland, Netherlands, Bermuda and a few other countries to be engaged in unfair tax competition. The solution most often cited is that the foreign country e.g. USA will tax foreign earnings at the US rate with an allowance for the amount of tax paid to the country where the taxable income was earned. This means that there would be no tax advantage for a US company in Ireland. It also means that if the Irish Gov’t taxes corporations at less than the US rate it simply forfeits that income. Keeping taxable earnings abroad so as to avoid tax is also being addressed in that there are proposals to file foreign tax returns annually and pay the IRS annually. I do not think it serves a useful purpose for us to argue over our tax haven status when the decisions have and are being made by foreign governments who will not be asking Enda’s permission before they act in their own interest. Even I would have a hard job selling Ireland as a tax haven. Just yesterday I was crying on the shoulder of my accountant. It is interesting how the statement of uncomfortable facts brings people like Joseph O’Toole and Paul W out of the woodwork. The reaction you are getting Stephen is not dissimilar to that I used to get 4-5 years ago when I used to challenge people on Ireland’s facilitating extraordinary rendition or even just the war in Iraq through Shannon. I got outraged reactions – I didn’t know the meaning of the word neutral. Ireland is a small isolated country that needs powerful friends. We need the money. We need the jobs. etc. etc. Take this schtick elsewhere folks. Ireland is a corporate tax haven. And not because of the 12.5% but the Double Irish and the Dutch Sandwich and the lack of any questions asked of Google and Microsoft and Facebook and the others. Deal with it. Did I miss something? I didn’t see this reported in any Irish newspaper this morning http://www.guardian.co.uk/money/2012/mar/07/bank-of-ireland-hits-mortgage-borrowers Mr Keegan is a very know member of the tax profession and Taxation Institute. He knows all about tax havens. They have been operating tax havens for wealthy individuals in Ireland for years without a mummer of dissent. These ‘tax havens, known as ‘reliefs’ for property, pensions, super pension, leasing income, SBSC relief, etc.etc etc. It was reported anecdotally a few years ago that €75 million was put into a pension fund a few weeks before the budget limited the ‘pension pot’ to approx 5 million. Did we hear a scream of ‘UNFAIR’ from the Taxation Institute. Have we any missives from Mr Keegan on the ‘equity’ of these reliefs over the years. When it comes to arguing for a level playing field in the taxation world, the Institute of Taxation has very little credibility. I’ve long been of the view, the biggest benificeraries, aren’t the Irish workers in these MNC’s but the companies themselves and the so called social partners in Ireland. The distortion of our national accounts enables the overpayment of social partners and covers up the waste and gouging that is endemic in the protected sector. Sure, there are some very well rewarded workers in these companies but the majority of them are in competition with other locations for projects, jobs investment etc…. Ireland certainly is a tax efficent place for profitable multinationals to locate, as they get to minimize their tax bill legally. Whether certain loopholes should be legal is another matter… But as well as the double Irish, there is the Dutch Sandwich amongst others. And effective rates of tax in most other european countries are not what is advertized. Seems to me that Stephen Kinsella is doing the Irish economy a service in highlighting a potential threat to its current business model, the model our Taoiseach is hawking in Harvard and around the world. If our economy is overwhelmingly dependent on FDI-driven exports for the growth that may, eventually, trickle down to the domestic economy and create net employment growth, then threats to that model need to be incorporated into our ‘enterprise’ strategy. Starting with Andy Grove, the former CEO of Intel telling us that the reasons for US corporations investing in Ireland had gone down from 14 to one ( corporation tax), attacks from Sarkozy et al, the proposed CCCT and the latest murmurings from Obama, it seems reasonable that someone might point out that threats to our ability to pay our debts, grow and create net employment should urgently be incorporated into that (‘industrial/enterprise’) strategy. That’s what I interpret Stephen to be doing ( debates about ‘tax haven’ definitions aside) and I believe he should be congratulated. We’ll ‘get away with’ our existing CT tax-based model for a while. But not forever. Who’s working on the ‘next’ model? One has to love the attack dog mentality of some here : people who probably never in their life did an ounce of research attacking SK for not doing research – people decrying the idea of even opening this debate – people engaging in the kinds of jesuitical hairsplitting that would make Bertie embarrased, people hiding behind the thinnest of legalities. And most of the attack dogs forgetting that its political economy at the highest levels, and we are usually pretty poor at that. I think the discussion about the definition of a tax heaven is besides the point. The real question is whether the Irish corporate tax rate is seen by other countries as harmful to their interests or not. It seems to me that it is perceived as being harmful by the large European countries (Germany,France,Italy,Spain) and by the Obama government. The second question is “what can they do about it?” In the States it will all depend on whether Obama win the elections and if the new congress will have enough Democrats and moderate Republicans for the president to ram through a reform of corporate taxes against a fierce opposition of all the multinationals and their lobbyists (not very likely). In Europe there is very little that you partners can do as long as Ireland does not ask for any new help ,like renegotiating your debts or benefiting of the EMF at the end of 2013 .If this happens you will find yourselves in a very lonely place and I think the implementation of the CCCT will be unavoidable . Of course Ireland is a tax haven why otherwise are mncs coming here? The US Bureau for Economic affairs named Ireland as a tax haven is several reports. Who was it in the last British government that refereed to ‘Lichtenstein on the Liffey’? I mentioned this before but it worth repeating: after the Ireland picked up the euro, a local accountancy firm here in Italy saw 60% of its clients go the Dublin – the notional head office stroke. Ireland has been in the tax horse trading game since it first tackled fdi. Pity is that when all the cash, credit, was washing around during the bubble Ahern & co. did nothing to regularize this. Also ireland must be one of the few tax havens that managed to o completely bust. +1 Richard… One example, Patents expiring in the pharma sector have been rightly flagged as seriously bad news for Ireland Inc. as it will have a far bigger impact than the employment numbers suggest. In the last few years convential wisdom has shifted to regard the latter part of the Celtic Tiger as the government foolishly spending a once off windfall and treating it as recuring revenue. Should the full difference between GDP and GNP be treated as a temporary windfall by the government? Or should stress tests on our finances include scenarios where the difference reverts to the EU average? @ Stephen You have rattled the Cages of the Tax men of Ireland. Expect a lot of Ad-hom. These guys are forced to make moral leaps well beyond the ability of most people on a daily basis. Usually they are able to do it without thinking about it too much but when you point out the obvious it rattles cages. They are well able to sleep at night safe in the knowledge they are highly regarded members of society. When you describe the jurisdiction they do their bidding in as “a tax haven” they are going to come out fighting. Their sleep depends on it. But with people like Michael Hennigan around to with the facts at his fingertips any of their empty arguments are soon thrown on the trash heap. However Michael Hennigans most interesting conclusion is “However, it appears now that while other countries are cheated of legitimate tax on profit on sales within their borders, Ireland now gains little from the facilitation but risks undermining legitimate tax competition.” To emphasise the point about Ireland gaining little lets look at the recent Corpo tax returns The Chemical/pharma industry which employs 50,000 (about 2.7% of the total workforce) people last year contributed 3 billion 75% of of the Corpo Tax. That means even if not one irish owned company made one cent of profit, all of the MNCs in the IT sector that are channeling profits from all over Europe through Ireland only paid 1 billion (at a maximim) in Corporation tax. Given our tax rate is 12.5% are we to believe that only 8 billion in profits were made and channeled through Ireland? Pull the other one. There is another school of thought that all nations are “cheaters” in their own ways. The Swiss have banks The English have their financial services industry, lots of others have weapons sales etc. People could argue all that Ireland is doing is finding its own niche in this messed up world. But then we are back to the sleeping at night question. is too much like a tax haven for it’s own good? Might have been a more useful headline. The alternative plan Bs lined up are…? Anyone? I think this could be a useful thread and some of the later contributions confirm that view. However, this morning on reading through the early comments I am now disappointed to have contributed to this thread at all. Ireland is in a very serious condition and there are lots of serious issues to be addressed; this is one of them. It is more than disappointing that the immediate reaction of some is to attack Stephen just because he raised the issue. By starting a thread he was looking for debate on the issue and offered counter-arguments a platform to be aired. Those who use the platform to rain down abuse may find that such platforms will be far scarcer in the future. @Seamus Coffey, Agree, but I think Kevin Denny has a point about this being a ‘theological debate’. Countries will use, develop and deploy all the weapons they can to advance their interests. Ireland has deployed the tax weapon very successfully, but it has created an ‘export enclave’ and it is losing its effectiveness. And Mr. Bond, too, is right in asserting that it is not the only weapon. But I’m with Richard Fedigan in his variation of “Cad a dheanfaimid feasta gan adhmad?”; what’ll we do when this weapon, inevitably, loses its effectiveness? and, more importantly, what weaponry will we develop to advance the economic propserity and social well-being of a small open REGIONAL economy? That, imo, is where the focus should be. Breaking Newz Text from Blind Biddy: ‘In Frankfurt for International Women’s Day – We’re gonna have a Bonfire of those Fiscal Corsets … home soon!’ Stephen is quite right to highlight our status as a tax haven about which there is a coming clampdown. Depending on your definition we are probably number three on the list of top global tax havens. It is a definite MNC incentive. ActionAID UK interestingly and successfully has completed a tremendous amount of detailed research in this area viewing it as a cause of poverty in many parts of the world through the various tax avoidance measures involved in the smoke and mirrors of this. The research links: http://politico.ie/social-issues/7966-coporation-tax-ireland-a-popular-tax-haven-among-ftse-companies.html http://www.actionaid.org.uk/101861/the_problem_with_tax_havens.html Its best to let the evidence speak for itself 🙂 @ Eamonn Moran “There is another school of thought that all nations are “cheaters” in their own ways. The Swiss have banks The English have their financial services industry, lots of others have weapons sales etc. People could argue all that Ireland is doing is finding its own niche in this messed up world. But then we are back to the sleeping at night question.” You hit the nail on the head there! There is a big political row in Sweden at the moment, by way of example, with regard to official – secret – participation in the building of a weapons factory in Saudia Arabia, a country not noted for the defence of democratic ideals. We can all sleep soundly at night. Render to Caesear etc.! What is striking about many contributions is the naivety displayed by them. The real question is whether or not it is wise to put so many of our eggs in the FDI basket. I do not think it is. But all countries compete to attract it and if Ireland did not get it some other country would. @ Seamus Coffey I agree with your point and the removal of any contributions containing ad hominem remarks would be entirely justified. Is Ireland a tax haven? NO. Ireland is a cash cow for the MatrixsQuidesque banking/financial elite who are bleeding the citizen serfs dry. Effective corporate tax rate here is ~11.5 – it is less than 8 in France when all the little fiddle-de-la-las are taken into account. And the charts with Ireland No 3, after US(state of Delaware), Netherlands is IRELAND http://www.actionaid.org.uk/doc_lib/addicted_to_tax_havens.pdf The FTSE 100’s favourite tax havens Secrecy (commercial confidentiality) surrounding the IFSC and MNC tax channels I’m sure provides a good sense of security for clients. @ DOD There are many other reports suggesting the one you are referring to is just plain wrong. I think the figures were based on fictional companies rather than actual results. Jim Stewert of TCD has put the effective Tax rate in this country at about 4% Others put the french rate at much higher than 8% @ Enda H You are missing the key point. Most of them don’t repatriate. The money is left in Europe (specificly the IFSC according to David McWilliams) until their is an amnesty. There is currently massive lobbying in the US to enable a new amnesty. The prospect of another 4 years of Obama makes this unlikely in my opinion. Those looking for clues as to the imperatives of ensuring Anglo bond holders are repaid, and why some political parties changed tack on bond burning, could do worse than imagine where Large MNC’s looking for safe havens for large builds up of cash might decide to leave their money resting during the 00’s. My last point is to Echo what Paul hunt is saying. Ireland needs to have a serious rethink on its research/indigenous corporate stratagy. Every time an Irish owned Company gets sold to an MNC it is reported as good news in the media. Generally nothing could be more misleading. These companies are the few that have made it. They are the ones that are starting to Flourish and what do Irish people do, we sell them to foreign MNC’s. Two recent examples include IBM’s recent aquisition and the UL company that got sold. What if an MNC had bought Nokia when it was young company. Finland would be far poorer. Why do Isreal invest in IT research but then encourage the companies to grow rather than sell them. There should be a clause written into research grants in order to give Irish companies first refusal. @ MH The point is legitimacy. Ireland is operating within the international rules primarily set by others. There has been and is no huge problem (illegitimacy). Hard for you and others to accept that, obviously. As a result, Ireland is the center for US pharma outside the US, is a booming IT sector, has a strong international FS presence (please note that a large section of IFSC employment is funds admin….not 12.5% CT dependent), etc. None of the positives are being balanced in the pro tax haven argument. There are threats and challenges and, yes, Ireland needs to be aware and adapt. It’s never good to be over-dependent on FDI. There need to be limits (there are…) and proper evolution of Ireland’s niche position. Unfortunately, that is not how Stephen’s article came across, albeit apparently unintended. Last post on this issue. Promise Stephen says his initial reason for wanting to bring up our tax haven status is that it would allow us to prepare for the dangers of a change in US Tax laws. Although I think it is always good to have contingency plans my gut tells me that Obama is not going to get his own way on this. This is basicly most of the Biggest Pharma and IT companies in the world V Obama. My money is on the guys who have been winning for the last 40 years. Attacking academics for opening debates about dangerous directions the Irish Economy is taking is something we have done before. http://www.youtube.com/watch?v=hfjGSfuSQpA Ireland’s position as an economy dependent on FDI flows from US multinationals is tenuous and starting a debate about that is the job of academics in this country. Talking about these things should be the motive of this blog, not shouting people down for talking about it. @ eamon moran Re “My money is on the guys who have been winning for the last 40 years.” That would be financial services, the banks, the MNC’s and the FIRE economy, the 1% Unfortunately, for the rest of us, that model has given us 2008, the Irish property bubble IMF/Troika result, the current meltdown in Europe, recession, and very probably a total collapse of an ailing monetary system.. Remind me whose winning again, perhaps a party to celebrate ? UL student, Is it really a debate. 1. Academic writes article to get noticed. Everybody wants to be Morgan Kelly now. 2. It arouses ire of usual vested interests to defend status quo. 3. Cue usual motley crew of people with too much time on their hands to attack vested interests Much shouting and finger pointing. No synthesis emerges. Meantime out in the real world people could lose their jobs and liveliehood over such a “debate” What happens if Prof Kinsella is wrong. Is he accountable for his bad call? Should he be? Colm Brazel, by definition the MNCs etc cannot be part of the 1%. They are corporate entities and not people..unless you happen to be Willard Romney. And talking of the 99%-1%. Is that even correct. IS not 5-94-1 more correct. The 94% who slave away to fund the lifestyles of the 1% and the 5% who blog incessantly at our expense about the unfairness of it all. @Seamus “It is more than disappointing that the immediate reaction of some is to attack Stephen just because he raised the issue.” It is not particularly surprising, however. I’m sure Anglo Irish went heavily into the ad homs when things started to go pear shaped. The last few years have been rich in crises and they all seem to follow the same pattern. denial abuse denial abuse denial hysteria denial crash If the initial abuse works then it’s back to normal but otherwise it’s a well worn path. @ tullmcadoo The usual motley crew appear to wish to destroy the status quo, good and bad. Understandable in these difficult times, but emotionally driven in the main. Obviously, misdirected or even unintended articles like this by high profile Irish academics have the potential to cause significant, real damage. I do not wish to unduly criticise Stephen Kinsella (and this will be my last comment on this). However, his article was incorrectly focussed and conveyed a damaging and apparently unintended message. It required swift rebuttal, which Brian Keenan succinctly provided. As per Eoin Bond above, Stephen’s “rebuttal seemed to be “Ah you know what i meant, don’t hide behind definitions, and there’s lot of opinion out there backing me up”. I agree, that is how he has come across on this occasion. Stephen’s reply here that “labeling really isn’t the core of my argument to be honest.” is not good enough. He did label Ireland in a very negative, sensationalist and destructive manner. @UL ‘Attacking academics for opening debates about dangerous directions the Irish economy is taking…’ Seems to me that opening debates about dangerous directions the Irish Economy is taking is EXACTLY what this blog should be doing. AND facilitating robust ( but NOT ad hominem) and well-argued rebuttals of courageous positions taken. Maybe there are clues in this debate for the principals and moderators of this blog. People who run, or have run, businesses and organisations, particularly international outfits, are acutely conscious of the constant need to be aware of the threats and opportunities they face in the short, medium and long term. Companies looking to invest in Ireland, including individuals considering starting, buying into or taking over Irish companies are extremely interested in hearing about the sustainability of the current business model and about what they might expect as a business environment 5 and ten years hence. A debate about the top 5 threats and opportunities facing the Irish business environment would HAVE to feature very high on the ‘threat’ list the sustainability of the current FDI/CT tax model. ( Quite apart from the degree to which Ireland is or isn’t a ‘tax haven’). What are the other 4 threats and the top five opportunities? And who’s working on them as a strategic priority? Surely one of the key threats ( and an opportunity) is/are the changes coming under CAP rules for our ‘booming’ agri-food business that is uncompetitive without EU subsidies, has NOT established brand equity on global retail shelves or in consumer awareness and is NOT, apparently, creating jobs. Looked at from out here in the ‘global market’, Stephen’s grasping of a critical strategic nettle looks spot on. As do the robust counter-arguments, with the exception of those that challenge his right and indeed responsibility to grasp the nettle. Lots to be learned from this. Bravo! Stephen. It’s unlikely that the dysfunctional American tax system will remain unreformed for decades more and ‘sf ca writer’ above has highlighted the potency of what is termed shipping jobs overseas. The last big tax reform was in 1986. The top 1% of US earners bounced back in 2010 and captured 93% of all income gains. Prof Michael Porter of the Harvard Business School heads a US competitiveness project and last month he directed sharp criticism at US business – – unusual for a leading management ‘guru’. He said companies drew from “the commons” (the systems that support all enterprises, such as the infrastructure, talent base, and education system) but adopted a mindset of “we are a global company and don’t need to worry about America.” Prof Porter says this attitude of self-interest and freeriding has eroded the commons. Ireland also needs to be concerned with freeriding. On infrastructure, a gas tax is used to fund the highway system but it has remained unchanged at 18c since 1993. The US National Science Foundation funded the mid-1990s research at Stanford University that helped lead to Google’s creation. Taxpayers also paid for a scholarship for the company’s co-founder, Sergey Brin, while he worked on that research. Prof Porter said that over the past few decades the American economy has grown jobs at a rate of 2% per year. But beginning in 2001, America’s job engine slowed. In particular, industries exposed to international competition have shown no net job growth for two decades. All job growth since 1990 has come from industries serving local markets, such as health care, construction, and retail. The inability to grow jobs in globally competitive industries is a troubling sign for competitiveness. Other countries have an interest in seeing that America maintains it commitment to globalization. Prof Emmanuel Saez of UC Berkeley says that from 1993 to 2010, average real incomes per family grew by only 13.8% over this 17 year period (implying an annual growth rate of .76%). However, if one excludes the top 1%, average real incomes of the bottom 99% grew only by 6.4% from 1993 to 2010 (implying an annual growth rate of 0.37%). Top 1% incomes grew by 58% from 1993 to 2010 (implying a 2.7% annual growth rate). This implies that top 1% incomes captured slightly more than half of the overall economic growth of real incomes per family over the period 1993-2010. Earnings have not stagnated but have declined sharply. For example, in 2009 the median full-time pay of male worker aged 25-64 was $48,000 – – about the same as in 1969 after adjusting for inflation. However, the median wage of all American males has declined by almost $13,000 after accounting for inflation in the four decades since 1969. This is a reduction of 28%! @seafóid “denial abuse denial abuse denial hysteria denial crash” We would call that a ‘methodology’ or ‘structured approach’ in PR. It’s usually far more chaotic than that when the whatsit hits the fan. Of course the client would see it as: rightful indignation, discredit their defamatory claims, threaten with lawyers, brief against ‘off the record’, rightful indignation, discredit ….. repeat until undeniable facts appear in the media followed by statement that you are only resigning to spend more time with your family/business interests/lover/lawyers/simple sword of truth and shield of British (?) fair play……..* * delete as appropriate Back on thread’ish, what’s the tax treatment vis redundancy payments in Ireland these days? (e.g. does some of it become taxable above a certain level/under certain conditions or is it all received tax free?) @Stephen, It’s fair to highlight that Ireland has some of the characteristics of a tax haven by whatever definition. It is necessary to take these characteristics into account in any analysis of the Irish economy. It’s a big jump to go from that to an unequivocal claim that Ireland is a tax haven, and it’s a jump that matters. Ireland’s economic future depends to a significant extent on keeping itself on the right side of the semantics, which is as much a matter of framing as of Ireland’s objective position. Research into Ireland’s objective position is clearly necessary for the sort of macroeconomic work in which you are engaged, and writing about this aspect of your work is clearly legitimate even if it may make people who are charged with protecting Ireland’s economic interests nervous. One of the key lessons of the last few years is that hiding the truth under a green jersey is not a positive behaviour. When you state that Ireland is a tax haven, you cross over from presenting an objective assessment of Ireland’s objective position to promoting a particular framing of that position. It is quite possible that your contribution to the framing will have a real world impact on the behaviour of governments and multinationals independent of the objectivel content of Ireland’s position. I suggest that on reflection you may want, freely, to dial back the contentious rhetoric and focus on facts which are interesting enough by themselves. Whether it is or it isn’t, its not doing any favours one of our senior economists characterising it as such in such a public way. The rest of the world did not wait for Pr Kinsella to discover that Ireland was a tax haven.In fact the Irish Government has worked very hard to promote that idea,particularly in the United States . The idea that telling the obvious truth can be in any way detrimental to the interest of the country is childish. @tullmcadoo @Paul W Are you intentionally channelling late-2008 Green Jersey Agenda rhetoric? Because that’s what I think of when I read humble academics’ opinions labelled as destructive and damaging. With respect lads, I don’t think you’re doing yourself any favours ratcheting up the outrage like that. Back to the topic: Ireland is very definitely a tax haven, but a corporate one driven by transfer pricing (and vice versa) rather than a Cayman-style hideaway for hot money. The commercial activity driven by the tax haven features is also masked by the fact that Ireland is a genuinely attractive location for many types of FDI, regardless of tax, e.g. much of pharma, software localisation, reinsurance etc. And it is perfectly legitimate to ask whether this is a wise and sustainable feature of Ireland’s policy landscape. “Whether it is or it isn’t, its not doing any favours one of our senior economists characterising it as such in such a public way.” Tá an geansaí glas ar ais arís Ireland’s decision to go for low corporate tax (as low as Eastern Europe), low income tax (for low-medium wage earners), high VAT and excise duties fits the recommendations of the OECD. Corporate taxes are found to be most harmful for growth, followed by personal income taxes, and then consumption taxes. Recurrent taxes on immovable property appear to have the least impact Does anyone want to make a case that Ireland has some unusual or unfair rules around transfer pricing? This has been mentioned a couple of times but is there any evidence to support it? The state claims to follow transfer pricing guidelines from the OECD and to update them as required as done two years ago in the 2010 Finance Act. SImilarly, does anyone wish toi make the case that we treat royalties in an odd way compared to other EU member states? MNCs require “follow the sun” operations centres in US, Europe and APAC. EMEA is often the largest of these three markets. Typically new high-tech MNCs start off with fairly low value-add activities in Ireland and then once trust is established by corp in the Irish base, it can start to climb the value chain adding product localisation, sales, and R&D. So there are opportunities to build on existing operations in Ireland, particularly where the local sub has profits residing locally. @ Tull Re “by definition the MNCs etc cannot be part of the 1%. They are corporate entities and not people..” We must let the Revenue know that bank accounts arn’t people as well 🙂 Most amusing. To be serious, income distribution in Ireland compared to that eg of the US, France, Germany especially in these times of austerity, is a topic worthy of analysis. @eamonn moran I’m always open to illumination …. tax systems are a pretty heterogenous bunch, with diff sectoral, size, and societal effects …. similar with personal taxation systems e.g. comparing Denmark and Ireland …. with interlinkages to other institutions etc What tends to p1ss me off are the likes of Le Petit Emperor Sarkozy focuses ONLY on the Nominal as distinct from the Effective ….. @Ossian Smyth “Corporate taxes are found to be most harmful for growth, followed by personal income taxes, and then consumption taxes. Recurrent taxes on immovable property appear to have the least impact” That party piece can be tried out once. And it doesn’t deliver much in the way of growth subsequently. Many communities in the US fund education budgets from property taxes. Genius is leverage in a rising market. Property may be immovable but property prices have a tendency to fall in times of austerity. When property prices fall education budgets get slashed. And then it gets worse when the politicians of the opposition sign a pledge to never increase taxes. http://blog.al.com/spotnews/2010/05/shelby_county_property_values.html Paul Jacka, a Realtor who has lived in the county 30 years and who is representing several homeowners in Ironwood, said he has never known Shelby County property values to decrease during his career until the recession hit. Part of the anticipated shortfall in property tax revenue would affect the Shelby County Board of Education, which, like every other school system in Alabama, already is dealing with a 7.5 percent funding cut from the state. It will mean more belt-tightening. Colm, Researching who is going to win the Champion Hurdle next week is a more serious top for discussion. It seems many on this board have allowed what ought to be entailed in the creditable and legitimate notion of pulling on “the green jersey” to have been usurped by what was entailed in the empty rhetoric of some politician in using the concept. Does calls to “burn the bondholders” carry less weight and virtousity in intellectual discourse now that it is part of the lexicon of the plebs? It ought not to, but no doubt there are plenty of high browed academics out there wouldn’t be caught making such a “common” observation. We really could learn something from our friends in America about wrapping ourselves in the flag at times of difficulty rather that good old paddy negativity. Spend a weekend in New York and you might get the picture. Anyone that understands anything about markets will know perception is everything. One only need look at Prf Sinn’s Target2 analysis to see how the ramblings of an academic injected some validity into what was essentially a vacuous construct – if it fitted with the agenda you were pursuing you’d run with and make plenty of use of the word professor too. I am in no way advocating censorship, I merely stated a fact that Pf Kinsellas ordaining Ireland a ‘tax haven’ isn’t going to help. Is that not an indisputable fact. If a noted and respected German professor tomorrow publised a paper about the unfair roggering Ireland is getting from his compatriots – would our politicians and media not be all over it – they’d be some clowns not to? One need only take a cursory look through the wikileaks wires to see the type of stuff US embassies relay back to HQ – think this observation might be one of them? I wouldn’t bet against it. @Joseph O’Toole Thanks for your contribution at the top of the thread. There was a discussion on comments elsewhere that raised “abuse” as a problem. Personally I was struggling to recall much of that and it is reassuring that your comment sticks out sore thumb-like. You seem very cross at Stephen starting a provocative discussion on this subject. That is usually the reaction in Ireland of fierce vested interests, and the success they have historically had shutting up people who say things that are inconvenient for them has stifled much necessary open discussion to the detriment of the state – if not necessarily those vested interests. Congratulations Stephen for responding to that as you did rather than being forced to take your ball away. @ David O’Donnell Maybe Sarkkozy has a point? France has a number ofvrates. The low effective rate in a PwC survey is based on an SME type firm of from memory a max of 60 employees. The Irish unit of PwC has of course an interest in spinning the issue as a son of former minister Mary O’Rourke did recently. “The French say the 12.5% rate is way too low, but when you look at the effective rate they actually have a rate lower than us,” Feargal O’Rourke, head of tax with PricewaterhouseCoopers was reported as saying, adding that recent controversy on Ireland’s rate at EU level were a result of “competitive jealousy” over Ireland’s effectiveness at bringing in foreign investment. Is the United States a Tax Haven (whatever a haven is) American corporations today are like the great European monarchies of yore: They have the power to control the rules under which they function and to direct the allocation of public resources. This is not a prediction of what’s to come; this is a simple statement of the present state of affairs. Corporations have effectively captured the United States: its judiciary, its political system, and its national wealth, without assuming any of the responsibilities of dominion. Evidence is everywhere. http://blogs.law.harvard.edu/corpgov/2012/01/05/the-corporate-capture-of-the-united-states/ Some Realism from across the Big Pond … The current system for taxing the income of controlled foreign subsidiaries of U.S. corporations — foreign-source income — makes no sense for U.S. multinational companies or the U.S. Treasury. In theory, foreign-source income is taxed at the standard U.S. corporate tax rate of 35 percent; in practice, Treasury generally receives no taxes on foreign-source income as long as it is held overseas. In fact, U.S. corporations now hold abroad an estimated $1.5 trillion in cash, which the current system encourages them to deploy by acquiring foreign companies and building overseas facilities. In response, some U.S. multinationals are lobbying for a tax holiday on repatriation of their foreign-source income, similar to the one enacted in 2004. Such a tax holiday would reduce the effective tax rate on those repatriations to 5.25 percent for a limited time period, for example one year. This proposal for another tax holiday is reportedly gathering steam in some circles of liberal Democrats. Another tax holiday for repatriated foreign profits would be a transition to nowhere. It does not address the fundamental problems of the current tax system. Indeed, it reinforces the incentives for U.S. multinationals to keep their foreign profits in overseas accounts — waiting for the next tax holiday. http://blogs.law.harvard.edu/corpgov/2011/10/11/a-two-pronged-approach-to-reforming-international-corporate-taxes-in-the-u-s/ New question: Is Ireland a profitable location? Yes or No. ?? @MH Sarky has a point all roight! And it’s aimed at immigrants, gypsies, Travellers, at anyone whom he believes he can placate the voters of vichy Frency National Front …. he’a disgrace to the European Project …. from the above …. What to Do About Ireland How would the proposal address Ireland and a few other countries where U.S. corporations have located substantial operations because of their low tax rates? Since Ireland has a corporate tax rate of 12.5 percent, income of a U.S. corporation from Ireland would be taxed by the U.S. at 7.5 percent (20 percent – 12.5 percent) every year even if it were kept in Ireland. If the U.S. corporation decided to repatriate that income to the U.S., it would also pay the administrative charge of 5 percent on the repatriated income. As a result, U.S. corporations would choose where to locate operations in Europe based on nontax factors such as the productivity of the workforce, the cost of building facilities, and transport links to relevant markets. This result would be strongly supported by our major trading partners in Europe, which have objected to Ireland’s efforts to attract corporate business primarily by offering such a low tax rate. Now why are we not educating enough engineers, IT, software etc and keeping those we do working in Ireland? @Eamonn Moran You are missing the key point. Most of them don’t repatriate. The money is left in Europe (specificly the IFSC according to David McWilliams) until their is an amnesty. There is currently massive lobbying in the US to enable a new amnesty. The prospect of another 4 years of Obama makes this unlikely in my opinion 1. Fair enough if they don’t repatriate. But that’s a different point to what I’m making – I said that Stephen’s article may give the wrong impression that companies can just repatriate it without any problems, and that’s why they’re setting up here. When you consider that repatriation, if it occurs, induces a tax liability, the problem is less severe. 2. If they don’t repatriate, can you explain the difference between Irish GNP and GDP? In responding to Brian Keegan’s article, Dr Kinsella’s line of defence seems to be attack the messenger not the message. Keegan’s article was, for me, clear and concise and if Dr. Kinsella wishes to dispute his points, he should do so in a grown-up professional manner and not engage in childish rants about Aristotle and accountants against jokes (AAJ?). “Tax haven” is a pejorative term and, irrespective of its precise definition, Dr Kinsella used it to attack Ireland’s use of corporate tax policy as a legitimate tool of competition. Does the same argument apply to the capital and employment grants awarded by the IDA to multinationals in the 1980s and 90s and which were the catalysts for FDI? According to Wikipedia (which may not be reliable), corporate tax is now approx 3.9bn (down from approx 6.7bn in 2006). The argument appears to me to be that firms are using transfer pricing to pay tax at our 12.5% rather than at a higher rate elsewhere and that were this to stop we would be in trouble. Given that legitimate business must be responsible for a reasonable proportion of this 3.9bn, where is the major threat? Perhaps I’m missing something but it seems to me that its not on the tax revenue side. Is it on the employment side, and if so, how large an impact could that be? I would imaine most multinationals that hire people here do so for productive reasons rather than to act as skeleton crews legitamising transfer pricing. Am I missing something (or using incorrect figures)? […] a further response by Stephen, it’s now all kicked off on irisheconomy.ie. For me, the top comment has come from Kevin Denny: it’s probably not very useful to use a […] @tullmcadoo “Researching who is going to win the Champion Hurdle next week is a more serious top for discussion” I’ll drop you a text to let you know what I think of them as they are leaving the parade ring next week 🙂 @Tony, The Corporation Tax is just the icing on the cake. The main concern is about employment in FDI firms, employment in their Irish suppliers, and employment in the wider economy driven by what all these employees spend. Also, the revenue that comes from taxing all these, directly and indirectly. @ MTR Keegan’s article was, for me, clear and concise.. Brain Keegan’s job is to support member firms in particular the big ones that serve the MNCc. Like mortgage bank economists, what he presents publicly is his organisation’s position not conflict of interest free analysis. As regards ‘a legitimate tool of competition,’ checkout Facebook Ireland’s 2010 accounts and compare them with Facebook UK’s for the same period. @ All Ireland has been traditionally intolerant of dissent – – how could the sexual abuse of children go on for decades and ‘nobody’ in a position to stop it, knew about it? For the ‘green jersey’ folk who advocate self-censorship, this is the type of paean you were saying amen to – – just 4 years ago this month: Why do we allow scaremongers and doomsayers with unfounded pessimism and unbridled negativity dictate our thinking and blunt consumer confidence? The Irish economy is the envy of the world. Job creation is phenomenal with more than 7,000 new jobs being created each month – despite the gloomy attention given to periodic job losses in some sectors. Unemployment stands at 4.1 per cent, the lowest in Europe; there are 750,000 more people in the workplace than a decade ago. We have revitalised cities and towns, a conveyor belt of entrepreneurial business people operating successfully on a world stage, a rich cultural and artistic heritage, a vibrant talented young population, rising by almost 100,000 per year, confident in their own and their country’s destiny. We should be celebrating our success on a daily basis. In any event, the Irish love affair with property will continue undaunted despite the knockers. http://www.independent.ie/opinion/analysis/property-markets-no-house-of-cards-123542.html @BeeCeeTee ‘The corporation Tax is just the icing on the cake. the main concern is about employment in FDI firms, employment in their Irish suppliers and employment in the wider economy driven by what all these employees spend. Also the revenues that come from taxing all these, directly and indirectly.’ Of course this is what the article (Stephen Kinsella’s) was about: threats, from Europe and now the US, to the sustainability of the model that underlay the lift-off of the modern Irish economy ( before the property and construction booms), the model that Enda Kenny was “selling” in Harvard under the headlines ‘Tax, Talent, Technology, Track Record’. It was crystal clear, to me at least, that Stephen’s article ( whether the ‘Tax Haven’ headline was his or an editor’s is beside the substantive point) was a genuine attempt to provoke debate on the fragility of our current economic model in a context where MNCs, particularly US companies, deriving higher and higher proportions of their future sales and earnings from markets outside struggling Europe, are strategically scrutinising where they are ‘based’ and why, now and for the future. This is particularly true given that net employment creation in Ireland from FDI peaked a long time ago ( 2000?) and our domestic economy is flat to the boards. Certainly in ‘Europe’ the perception of Ireland as a fiscal ‘dumper’ was widespread long before this article and I don’t think there’s any doubt, even in the comments on this thread, that Ireland’s CT rate is prominent among the ‘competitive advantages’ attracting this dangerously ‘mobile’ FDI. So, we need to battle to sustain our existing competitive advantages but also, surely, begin the process of planning for how we’re going to survive and thrive if ( or more like when) the landscape changes. Which it is ( changing!). Now! That’s what the man (Stephen) was talking about. @Ronan Lyons ‘Let’s Ask Investors’. Very useful quasi-scientific ( in the ‘good’ sense!) contribution which seems at the same time to confirm Stephen’s thesis that perception of Ireland as an extremely ‘tax friendly’ environment is very important in the eyes of investors but also puts this perception in a context of overall answers to the question ‘why invest in Ireland?’ Nobody will be surprised to learn that ‘access to EU markets’ is by far the most important. Almost tautological in the sense that our original sales pitch, before we refined our CT regime was our membership of and proximity to ‘EU markets’. Interestingly, and I don’t know what specific questions were asked, nobody seems to have cited ‘membership of the Euro’ as a competitive advantage! Or is that part of ‘access to EU markets’? ( unlike Birmingham, for example!). So, it’s not ‘all about the tax’ but it would appear that Ireland’s ‘phenomenal competitiveness at attracting FDI’ would be ‘under threat’ if we were to lose attractiveness in any one of the four main ‘pillar’ areas identified by investors: (EU) Market Access, (Skills – not just “Irish” skills!), Regulatory Regime and….Tax. Seems to me that Stephen was right to draw attention to current threats to one of these four main ‘pillars’. Particularly since there appears to be no real urgency about radically reviewing our existing model for the time ( coming quite soon) when ‘access to EU markets’ will be less important to these mainly US MNCs! Then we may regret our over-dependence on these mobile investors and our lack of planning for ‘life after US FDI’! @MH “Brain Keegan’s job is to support member firms in particular the big ones that serve the MNCc. Like mortgage bank economists, what he presents publicly is his organisation’s position not conflict of interest free analysis.” +1 @ Richard Fedigan ‘Of course this is what the article (Stephen Kinsella’s) was about: threats, from Europe and now the US, to the sustainability of the model that underlay the lift-off of the modern Irish economy ( before the property and construction booms), the model that Enda Kenny was “selling” in Harvard under the headlines ‘Tax, Talent, Technology, Track Record’’ Ireland is a quare beast. It’s important to think about how exactly the FDI sector contributed to lift -off. Direct and indirect employment effects were never more than modest, and peaked a decade or more ago. Strategic control of the MNCs never moved to Ireland, so while there were opportunities for individuals, there were few opportunities for local businesses. Linkages to local SMEs have never been great, although there have been some niche opportunities. Synergy was low, and we never got the Silicon Valley effect. The FDI sector has always been an enclave, which impacts mostly on our export stats and current account. This led to a false perception of development in the domestic econony, which remains rigid and riddled with local vested interests. Local vested intrerests, principally the banks, were able to leverage themselves, in perception terms, on the back of the FDI export performance. This ‘green jersey on steroids’ effect enabled those interests to drag Ireland deeply into the credit bubble. Absent the glowing (transfer price inflated) export ‘performance’, Grafton St would never have topped the rental stakes. A further myth was then built on top again., This was the ‘knowledge economy’, of which the main beneificiaries were ‘movers and shakers’ at the top of the academic sector. The thousands queiing at the jobs fair include many graduates, who were, in retrospect, sold a pup about jobs prospects. As they leave, the permanent and pensionable costs of an overdeveloped academic machine have been left to the domestic taxpayer. House of cards. @Richard, There was a marginal increase in FDI employment in 2010, and it seems like a reasonable bet that it is currently on an upward trend given the well known labour shortages in ICT and the number of sigificant inward investment announcements being made at present. All the points you say Stephen was talking about are proper topics for policy discussion, but he could have made them effectively without saying “I contend Ireland is a tax haven …” (his words, his blog). My own perspective is that he and you are not exaggerating the worst case outcome, but that you are exaggerating the certainty that it will come about. However, when you argue in favour of the need to develop indigenous industry you are arguing for a strategy that is robust whatever happens to FDI. You are also reflecting a perspective that has been mainstream in Irish industrial policy since the Telesis report of 30 years ago, although it has not always been supported sufficently well. It should be possible to make the case effectively without using rhetoric that increases the risks to FDI. I think it is a weak article, making a poor attempt to be sensationalist, taking an overly simplistic view of why US companies are located in Ireland, and not giving any useful information on actual developments that might impact Ireland. In the US many Republicans want to move to a territorial-based corporate tax system like the rest of the world uses. Obama’s main concern is to reduce the benefits of deferral, and to ensure that a certain minimum level of tax is paid. An analysis of how both these possibilities could impact Ireland would be useful. However in the article no analysis is performed – instead there’s just a sweeping statement about tax changes in the USA “cutting Ireland’s recovery off before it starts”. Also the statement that “the biggest threat we face as a nation is Barack Hussein Obama” is just complete and utter rubbish. It is not obvious or inevitable that these proposed US tax changes would make a huge difference to Ireland. The US wants some of the money that is resting in Bermuda accounts and the like, but the US could actually be better off if the money ends up in Bermuda in the first place (possibly routed through Ireland) as the foreign tax credits that would offset the amount remitted to the US would be low or non-existent. The less money that is paid to foreign governments the better, as there is more left over to be taxed by the US. Also a number of the proposed measures are intended to stop “exporting American jobs”. Google, Microsoft, Facebook etc. are not exporting American jobs to Ireland, since none of the core development occurs in Ireland. The job functions in Ireland are predominantly pre-sales, post-sales, consulting, advertising, biz-dev, localization etc. If the jobs were not in Ireland, they would not be in the USA, they would be in France, Netherlands etc. The jobs the US “wants back” aren’t these jobs, and the measures are more targeted at blue-collar manufacturing jobs. It is clearly a complex area, and I raise the issues above mainly to show that the implications are not self-evident, and I’d like to know the answers, but the debate is ill-served by predominantly focusing on the “tax haven” designation, which inevitably invites a “we’re not a tax haven” response, and nobody is any the wiser. @Richard Fedigan I don’t believe membership of the Euro is a significant deciding factor when companies are deciding where to invest. For example a number of Chinese tech companies are moving their EU HQs from France and the Netherlands to the UK, as the work expands from being pure sales to more consulting, customization etc. The attraction is the availability of English-speaking engineers and a business culture that fits better with their own than that of continental Europe. Ireland ticks many of the boxes but a problem is perceived supply of qualified staff from what is viewed by China as an extremely small country. This is likely also not just a perception problem but a reality. Given all the considerations, the Euro or lack of it, is way down the list. Market access is what counts – global companies can handle currency conversions. @BeeCeeTee ‘It should be possible to make the case effectively without using rhetoric that increases the risk to FDI’. Fair enough. I’d contend that ‘the case’ is what Stephen was really on about, with the FDI ‘tax haven’ aspect merely the headline and indicator of the immediate threat to what Ronan Lyons’s ( contribution) has clarified as just part of one ( the competitive tax infrastructure) of 4 competitive advantage ‘pillars’, the most important of which is (EU) market access. I thought you were going to say that I was exaggerating the timing of the worst case scenario rather than its certainty. Here I have to part company with you and contend that it is CERTAIN that US MNCs will derive absolutely and proportionately more growth, revenues and earnings OUTSIDE Europe and that this trend is ALREADY under way. By definition, this renders (EU) ‘market access’ less of a prioroity for these US MNCs and i would say sooner rather than later. So, strategically, I’m contending that this trend is certain and I may be exaggerating ( slightly) the timing. Ireland’s ‘tax haven’ status or (less rhetorically) its ‘competitive tax infrastructure’ becomes a sine qua non but SECONDARY to our positioning as a ‘gateway’ to a proportionately diminishing market as far as the ‘mobile’ US MNC investors are concerned. It’s the sustainability, indeed the validity, of our positioning as a ‘gateway’ to a proportionately diminishing market that’s the real strategic threat. And we haven’t even put this issue on the ‘policy’ table for discussion, response and much less ANTICIPATION. I’m happy you introduced the ‘Telesis’ report although I disagree that anything more than the rhetoric of the Telesis conclusions on indigenous industry has been ‘mainstream in Irish industrial policy’ since then. In a way, it’s this rhetoric, and its obfuscation of the real work to be done, both on the supply side and in terms of global marketing, that’s much more damaging than Stephen’s ‘Tax Haven’ headline. A headline that, frankly, won’t take it higher than it has been on the screens of the very troubled US and European ‘policy’ class right now. Since Telesis, and blinded by the FDI ‘export’ miracle, we have come to believe the rhetoric of an indigeous Irish sector about to burst onto global markets and solve all our problems, including unemployment. Coming up to lunchtime here in Paris, if I was convinced I urgently needed an Irish steak, lamb cutlet, slice of smoked salmon or dairy-based dessert, I wouldn’t have the first clue where to find them and will bet you a substantial sum that I could NOT. Still, we are “The Food Island”! Seems like we’ve reached the end of a very worthwhile thread that ALMOST got us to conclude that we need a new ( ‘enterprise’) strategy. Whether we’re a ‘tax haven’ or not. @Michael Hennigan Ken McDonald’s piece de resistance from 2008 has echoes in a letter to Today’s Irish Times http://www.independent.ie/opinion/analysis/property-markets-no-house-of-cards-123542.html Since the start of this year the hysterical negativity has risen to a crescendo from some quarters, lacking balance and an appreciation of the intricacies of theresidential market. http://www.irishtimes.com/letters/index.html#1224313061277 • Crude comparisons between public and private sector salaries are not comparing like-with-like and are therefore irrelevant. Average public sector pay will always come out ahead of the private sector due to the skilled, highly professional nature of the work involved and the qualifications that are required to perform it. Rarely, however, is this part of the argument incorporated into such discussions. – Yours, etc, DAVE THOMAS, General Secretary, Association of Higher Civil and Public Servants, @BeeCeeTee Ah yes, the good old Telesis Report that sent official Ireland running for cover. All of a sudden all of the IDA blather about indigenous firms, what would be called ‘donning the green jersey’ now, received the equivalent of a rub with a dehorning iron on its sensitive parts. A rearguard action was fought against the conclusions of the report before they were even published, a curious business but the voices at the top table wee allowed get their retaliation in first. The result was a two year delay in the report’s publication. All sounds familiar. Telesis also queried the quality of mnc work coming to Ireland, and its R&D and spinout potential. It concluded that many of the jobs were actually relatively low level ‘screwdriver jobs’, which again ran counter to ‘official’ expectations. I don’t know what the equivalent of ‘screwdriver jobs’ would be today, I can guess, but one wonders whether everyone walking around with a degree is getting work matching the state investment of three, four, and more years in their education. The problem today, I suspect, is that another Telesis Report, while arguably needed in such a prolonged recession and covering value for money in academia and industry, could not be produced. It would bring down the chorus, if revealed that many high tech companies have relatively low tech insides in ireland, that much innovation policy was aspirational, etc.. Most certainly, as Michael Hennigan has pointed out numerous times here, a report that dissented from the ‘official Ireland football programme’ wouldn’t make it off the photocopier because dissent s something Ireland doesn’t do well, if all. Good to see some controversy aired in public about FDI policy. @ seafoid my hair almost took fire when reading that letter in the times today. I would expect the IT editors mail box will be heaving in responses to the delusion that clearly reigns in the upper echelons of the Irish Civil service – i think hobbs summed it up best recently on TV3 when he referred to them as a “cult”….Mr. Thomas has done little to disabuse of that notion! @Richard, 2 points. 1) The rise of the East makes EMEA proportionately less important than it has been, but unless EMEA economies seize up completely there will still be plenty of jobs in being the gateway to it. The main FDI issue for Ireland is whether it can be that gateway more effectively in future than it has been over the last 10 years, or whether it will suffer from a long term decline in FDI. 2) I’ve seen you complaining about how ineffective measures to support the development of indigenous Irish industry are for what seems like years now. You will be hard pressed to find anyone involved in Irish enterprise policy who disagrees with you on how important it is to do this well, and how great it would be to do better. The choke point here is not in the willingness of policy makers to do what it takes to build indigenous industry. It is, despite a lot of effort, in their ability to find ways to pursue the goal that you and they share that are sufficiently effective. You seldom have anything specific to say on what should be done differently, and when you do it is almost invariably similar to something that is already being done. If you want to improve matters, try finding something new to say. On the specific point you raise about finding “Irish steak, lamb cutlet, slice of smoked salmon or dairy-based dessert” in Paris, it’s worth trying a decent-sized supermarket. I’m not up to date on how Irish meats are being marketed in Paris, but there have certainly been periods in recent years when significant volumes of Irish steak were branded as such, and the last time I was in a French Carrefour it carried Irish-branded smoked salmon. Country of origin branding is always less likely to carry through to the consumer in catering, but any French chef can easily buy Irish beef or lamb if they want it, and Bord Bia puts a significant effort into promoting it to them. Bord Bia has been supporting country of origin branding of Irish food for years, and it’s not at all obvious to me that the job they are doing on it is inadequate. @BeeCeeTee 1. ‘The main issue FDI issue for Ireland… is whether it will suffer from a long term decline in FDI’. Umm! Yes. That’s what I said. And I argued that it’s happening, we will, and it’s not creating net employment growth. So, apart from pretending it’s not happening, what’s our policy? 2. ‘If you want to improve matters, try finding something new to say’ Well there’s nothing new about consumer products marketing. The big global suppliers have been doing it for over 100 years and retailing has been global for over 20 years. One either does it or one doesn’t. It involves products constantly adapted to consumer perceptions by market segment, appropriate distribution channels ( well known for eons now) and lots of investment in marketing and promotion through old and new media. The only “Irish” products marketed globally in this way are drinks handled by the no 1 and 2 global market leaders, Diageo and Pernod Ricard. RyanAir, an ‘indigenous Irish’ company markets to mainly European consumers in ways you know through an internet model and that’s about it for “Irish” consumer marketing products and services. The Alchemist seems to feel that the type of Telesis Report ( or audit) that is precisely the sort of action required now ( not ‘new’ but based on today’s and tomorrow’s market realities) would not be viable because, as happened with the last one, it ‘would not make it off the photocopier’ and ‘would bring down the chorus’. It is possible to find a packet or two of ‘Irish’ smoked salmon ( hidden behind well-promoted and marketed Norwegian and Scottish product but your contention that ‘country of origin branded’ or identifiably Irish meat is available in th my local ‘decent-sized French supermarket’ is, forgive me, dangerously delusional and indicative the chasm between our propaganda and realities in global consumers’ perceptions as well as on their retail outlet shelves. What we need is not “new” at all. We need to audit our real capabilities, honestly identify our strengths and weaknesses, develop real strategies based on these audits ( not aspirations) and DO THE WORK at least up to the level of our competitors. Then we MIGHT win a battle ot two and maybe, eventually, a small war. Outline audits of the Irish agri-food sector have been carrried out and the results, which have never been formulated into a meaningful strategy, have clearly concluded that we can’t win the ‘commodities’ game but have NOT invested enough to be even a ‘player’ in the consumer marketing game! No ‘Irish’ beef for my lunch today! @richard fedigan Don’t forget Ryanair. One of the greatest indigenous success storied of the last 30 years. I am amazed and baffled time after time when i hear politicians jump on the handcart at the promise of some mnc or spinout bade runner type company creating a few dozen jobs over half-a-dozen years and yet so little praise is directed at O’Leary and Co. It says something about reality and politics in Ireland. @ Bee Cee Tee ‘The choke point here is not in the willingness of policy makers to do what it takes to build indigenous industry’ It’s not what people say, it’s what they do that matters in the last analysis. Indigenous export industry could not grow without massive investment and credit. The record shows that our banks preferred instead to (mal)invest in property, busting not only themsleves, but our state and our collective economic prospects. Our policymakers stood over all this waste. It’s likely that our new road infrastructure will be come, in the longer run, to be regarded as gross PS malinvestment. Massively profitable for the private contractors and their associated professions, but ultimately a drag. The FDI sector is a fig leaf covering our failure to develop indigenous tradeable goods and services. I say that with all due resepct to the skills and hard work of the many genuine folk in the that sector. Their interests matter, but not as much as the national interest, which has clearly been betrayed. @ Alchemist Hmm.. How many people do Ryanair employ in Ireland ? How many jobs have been lost elsewhere in the aviation sector, as a result of their ‘robust’ business approach ? http://www.air-scoop.com/pdf/Ryanair-business-model_Air-Scoop_2011.pdf @The Alchemist I DIDN’T forget RyanAir ( have another look!). Actually the ONLY substantive/European-scale, indigenous consumer branding success story out of Ireland in the last 30 years. Could be said O’Leary didn’t invent something ‘new’ ( the SouthWest Airlines model!) but he DID the work/audit, looked at a sclerotic European market, brought in a model from elsewhere, adapted it and pitched it directly by internet at consumers fed up to the teeth with green jersey ( or equivalent), monopoly-ridden sheltered markets. And created employment for relatively low-skilled Europeans without Ph.Ds. On Agri-food, what about a mega-joint venture with Fonterra? A company not too bothered with blather about their products on global supermarket shelves but the No 1 dairy processor in the world, a huge exporter already well-established with high tech products adapted for Asian markets, desperately looking for increased milk supply globally. And all done without EU subsidies or equivalent? That ‘new’ enough for you BeeCeeTee. Link it up with eco-tourism and the slogan ‘Poles Apart, Naturally Together’! Too difficult. Not ‘new’ enough! Here is a fundamental aspect of our economic development problem http://www.interfluidity.com/ @ Ossian, Just a curiosity…I half-remembered “Russell’s Teapot”, looked it up on wikipedia, and see the following: “Counterarguments Literary critic and novelist James Wood, without believing in God, says that belief in God “is a good deal more reasonable than belief in a teapot” because God is a “grand and big idea” which “is not analogically disproved by reference to celestial teapots or vacuum cleaners, which lack the necessary bigness and grandeur” and “because God cannot be reified, cannot be turned into a mere thing”. Philosopher Paul Chamberlain says it is logically erroneous to assert that positive truth claims bear a burden of proof while negative truth claims do not. He notes that all truth claims bear a burden of proof, and that like Mother Goose and the tooth fairy, the teapot bears the greater burden not because of its negativity but because of its triviality, arguing that “When we substitute normal, serious characters such as Plato, Nero, Winston Churchill, or George Washington in place of these fictional characters, it becomes clear that anyone denying the existence of these figures has a burden of proof equal to, or in some cases greater than, the person claiming they do exist.”  Another counter-argument, advanced by philosopher Eric Reitan, is that belief in God is different from belief in a teapot because teapots are physical and therefore in principle verifiable, and that given what we know about the physical world we have no good reason to think that belief in Russell’s teapot is justified and at least some reason to think it not. ” http://en.wikipedia.org/wiki/Russell%27s_teapot @michael hennigan Michael – I’n mot sure I was “spinning” as per your post. Perhaps if I provide a link to the actual report it might help. http://www.pwc.com/ie/en/press-release/press-release-17-02-2012.jhtml (Actual report is on the left hand side – the link is to our analysis). The global report doesn’t just deal with the rates of tax in the various countries but also focuses on the ease of paying and the time taken to comply with the tax obligations using a template company in each country. Ireland has made huge strides on these latter two areas in recent years which can only be good. I do believe that the 12.5% rate of tax works for Ireland and my comments when I dealt with that journalist simply echoed what I have said publicaly all along. See my article last year on this issue when the 12.5% rate was raised. http://www.irishtimes.com/newspaper/opinion/2011/0318/1224292506337.html I don’t believe we are a tax haven. Secrecy , a lack of Double Taxation Agreements and “deals” are all a feature of tax havens. We tick none of these boxes. It is not in Ireland’s interests to be a tax haven. I believe the 12.5% rate is positive for Ireland. I’m basing that on having spent most of the last 15 years working in attracting FDI into Ireland as opposed to it going to UK, Switzerland, Holland etc. Its about much more than tax – but tax is an important pillar. Right now I am spending the week in the Valley talking to a lot of my clients who are in Ireland already but also talking to companies who are looking at expanding to Europe for the first time. We are competing with other countries to “market” ourselves as the location of choice – and whether we like it or not, the reality is that tax rates are a part of this analysis. The 12.5% is not – in my personal opinion – about the actual rate itself. After all, when it was proposed in 1996, insiders talked about a rate between a low of 10% and a high of 15% and 12.5% was selected. It’s about what all investors crave – certainty. In the FDI community, we’re seen as having come through the fire in defending this and they believe that it is now not for changing. Certainty aids investment decisions. As a member of the Commission on Taxation (2009) we concluded that any change in the rate either up or down was not desirable and I still support that conclusion. Finally Michael, I’m not sure what my nearly 75 year old retired Mother’s previous occupation have to do with my view on Corporate Tax policy 🙂 Comments are closed.