Is Ireland a tax haven?

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

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?

Yeah stick to your knitting and leave the real men talk about, eh, tax policy. Christ almighty

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.

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?

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?

@ 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.

@ 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

@ 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).

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.

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

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.

Don’t let the three-letter anagrams (TLAs!) invade your dreams. IMF, FSF, OFC, IRS, IMF. Your thread has prompted an avalanche of them!

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.

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?

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?

@ 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.

@ 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?

Even I would have a hard job selling Ireland as a tax haven.

Just yesterday I was crying on the shoulder of my accountant.

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

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.

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.

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.

@ 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.

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.

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!’

@ 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.

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.

@ 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.

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.

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.

@ 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.

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%! 

@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.

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.

“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

@ 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.

@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.

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.

@ 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.

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. ??

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?

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?

@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.

@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’!

@ 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.

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.

@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.

@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.

@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.

@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.

@ 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

Here is a fundamental aspect of our economic development problem

http://www.interfluidity.com/

@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 🙂