The economic and fiscal contribution of US investment in Ireland

This paper by Keith Walsh (Revenue Commissioners) is illuminating on the taxes paid by US firms in Ireland and explains the differences between Revenue-sourced tax data and the BEA-sourced data – here.

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6 thoughts on “The economic and fiscal contribution of US investment in Ireland”

  1. Yes – this is a useful paper. Walshe has another one with a colleague in the Economic & Social Review. Revenue is in one of the best positions to comment locally (and globally) on tax issues – it quite simply has more relevant data and spin is fairly alien to its DNA; it listens to enough of it every day.

  2. I think the comments by Jim Stewart at the end of the paper are most relevant to understanding the correct position.

    Keith has a great future in the Public Service producing papers such as this one from 2010.

  3. This is a vital contribution to the debate on multinationals as it gives a true measure of their contribution to the economy. It’s a case of ‘Show me the money’ i.e., real money being spent in Ireland and only the Revenue Commissioners have this information. Let’s forget about or adjust the economic statistics showing inflated ‘exports’or supposed improving competitiveness caused by the booking of foreign revenues in Ireland.

  4. @Elia

    Agreed. This report seems to put the effective Rate of tax very close to the official 12.5%. It is worth quoting some of section 4.6. (Page 49)

    “The ETR is estimated at the level of the individual companies, unlike the estimates based on aggregate BEA data. The average (median) ETR for US companies for 2008 was 11.2 per cent. In 2007 the median ETR was 11.1 per cent. The median ETR in 2009 was 9.5 per cent but this figure is preliminary pending the full set of tax return data for 2009.
    The ETR would not be expected to match the standard 12.5 per cent rate exactly due to variations in the taxable base and, in particular, some manufacturing profits are taxable at 10 per cent in Ireland (this rate is important for many US companies).19 But it is striking that the average for US companies is very close to the standard rate and well above estimates produced with aggregated BEA data.”

    So the real issue is not that US companies pay a lower fudged rate on their profits generated in Ireland. They don’t.
    The real issue is why there are locations such as Bermuda, Netherlands, etc where profits not earned in Ireland can be housed, under any flag, be it Irish or not, and not be taxed in that location, either by the local administration or by the US tax authorities themselves.

    My understanding is that the Irish government (Budget 2014 announcement) is belatedly moving to correct this ‘anomaly’ from an Irish point of view. However, that is unlikely to end the practice unless there is a more concerted OECD effort, supported by the US authorities themselves.

    Imho, the Irish Corporate tax rate of itself is too low in itself at 12.5% and a better contribution from all corporate profits is warranted, but it is clear from the Walsh report that the standard rate of 12.5% is generally being achieved on profits generated in Ireland (subject to the usual capital allowances etc).

  5. Excellent paper. However the ETR section, as summarized by JR above, is too simplistic. Of course the 12.5% or slightly reduced blended rate is applied to “taxable income”. The Big Game of course is the calculation of taxable income in the first place….not necessarily /almost always not the same as earned income. For instance, converting income from Case I taxable to say non-taxable Franked Investment Income (dividends) is only one of hundreds of techniques used to reduce the former. Also, crediting foreign WHT against Irish CT results can also bastardize the Irish rate. I won’t get into the detail any more than that. It is an exceedingly complex area. However, the ETR analysis is very simplictic….I am aware of numerous (non US) IFSC companies that paid 2-3% (real) effective rates. However, they all paid 12.5% on their taxable incomes. Anyone who knows this area well knows this whole discussion in Ireland is “missing the point”. Ireland is being used as a conduit to transfer profits to even lower tax jurisdictions (DTA “shopping”). Also, REAL effective rates of CT have been exceedingly low.

  6. Paul W hits the nail on the head here.

    The tax paid by Google and Microsoft, on 2012 and 2011/2012 net income after multi-billion royalty charges results in effective rates of 11% (€17m on €154m) and 13.2% (€132m on €1bn) respectively, appearing to confirm the official line that Ireland’s effective rate of corporate tax (actual tax paid as a ratio of net income) is close to the headline rate of 12.5%. However, the net income in Ireland is minimised through huge intercompany charges.

    Apple paid $713m in overseas corporation tax on foreign profits of $36.87bn in its 2012 fiscal year ending last September. That’s a tax rate of 1.9%. The rate rose to 3.6% last year and Ireland is the main facilitator of these low rates.

    It is likely a reasonable assumption that the Revenue would query a large foreign charge in the local accounts of an indigenous company than it would when for example Microsoft Ireland’s accounts.

    Last year Keith Walsh co-authored a paper with Gary Tobin, head of tax at the Dept of Finance. Again there wasn’t any reference to sandwiches and a German economist’s estimate of an effective rate of over 14% got prominence.

    http://www.finfacts.ie/irishfinancenews/article_1027120.shtml

    CRH had an effective rate of 18% in a recent year – the weighted rate based on where it operates.

    The attention given to the effective rate dates from when Nicolas Sarkozy, French president, made an issue of the headline rate of 12.5%.

    Then the rate for the Irish flower pot maker was 14.2% and the French rate was 8.3% (the low rate in France applies to companies with earnings up to €38,000.)

    It was of course a handy rebuttal despite it being a dodgy comparison.

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