I notice that there is no election thread, which makes sense given that we were probably all fed up with the campaign before it even began. And I’ve nothing original to say on the subject either. But there probably should be an election thread, and if there is to be one, someone has to kick it off by saying something. So, in that spirit: do we all agree that (a) the Irish economy is now recovering, and doesn’t need further stimulus right now; (b) that the Irish economy has proved itself over previous decades to be unusually volatile; (c) that the international outlook right now suggests that there are risks on the horizon; (d) that the Eurozone is a very dangerous place to be anyway, if you are a small country; (e) that broad tax bases are preferable to narrow tax bases; and (f) that given all of the above, arguing for the abolition of the USC or water charges (water charges, as opposed to Irish Water) is grossly irresponsible, and should suffice to disqualify a party from being taken seriously as a “safe pair of hands”?
Archive for the ‘Fiscal Policy’ Category
I’m writing an economics column in Critical Quarterly, a humanities journal, which is a bit of fun. They are supposedly free to view for 12 months after publication. I already posted a link to the first, on the European democratic deficit, but neglected to link to the second, on migration. The third, on secular stagnation, is available here.
Written for the RENUA flat taxes event today.
When all the little economists are in short pants, we learn the principles of public finance. Governments have to tax households and firms in order to provide services the market won’t, like libraries, street lighting, and national defense, as well as redistributing income from the rich to the poor as an aid to social solidarity. Taxes are a necessary evil. All taxes induce distortions to people’s behaviour. Some distortions, like the plastic bag tax, are clearly good. They make almost no one worse off and make lots of people better off. Recurrent taxes on property are in fact the least distortive to long run GDP per capita we have. While a site value tax would have been perfect, the LPT does a similar if suboptimal job.
Some taxes are highly distortionary, such as a very low corporation tax rate, or a very high income tax rate. These make lots of people better (and worse) off and damage important incentives. An efficient tax structure would deliver the funds to power public services with the minimum of distortions to individual and collective incentives. The theory of public finance has come around to the view that marginal taxes are not the most important thing to worry about, in information-opaque systems, the average tax rate should be relied on most heavily. The all-in tax rate for personal income tax & employee social security contributions is 52% here, relative to 46% on average across the OECD.
Perhaps more importantly, the ability to balance the average tax rate with a corruption-resistant tax structure through which taxes are collected and disbursed is a major asset of any public finance structure. Important results have now been established showing the spread of corruption is quite badly affected by the ease with which the variables which determine the tax base can be manipulated by those in power. If we worry about the Noonan-end of the tax gathering element first, then, two principles which therefore make sense are simplicity and certainty with respect to the tax system.
Here are three papers I have read recently.
1. Reinhart and Trebesch on the way that external debts can hollow out local democracies. No need to elaborate on this I think.
2. Avdjiev, McCauley and Shin on cross-border banking: well worth a read for people not familiar with this stuff. They are talking about complicated transactions, but as we know in Ireland, much simpler transactions (banks borrowing overseas) can have dangerous consequences.
3. Athanasios Orphanides on the highly politicised nature of crisis decision-making in the Eurozone.
From 3, and from everything that we have observed during this crisis, from Ireland in 2010 to Greece in 2015, I infer that a small country is much more vulnerable inside the Eurozone than outside, if it gets into trouble. Outside, you will deal with the IMF on its own, and they have a standard policy template: debts will be written down, currencies will be devalued, and yes, there will also be austerity. Inside the Eurozone creditor countries will sit alongside the IMF at the table and you may find that neither of the first two policies will be feasible, which will make the austerity far more harmful than it would otherwise be, both economically and politically.
From 2, I infer that a small country needs to watch its banks like a hawk, especially if it is inside the Eurozone, because (from 1, and 3, and from what we have experienced since 2010) the political consequences of not doing so are just too damaging.
And from 1 and 3, I infer that government debts are something that small countries inside the Eurozone also need to be very concerned about. Especially in a monetary union without a banking union, like ours.*
So I find myself in agreement with Colm McCarthy. As was the case 15 years ago, we need to worry about the possible real exchange rate consequences of expansionary fiscal policy at this point in the cycle. And to be fair to the Irish economics profession, lots of people did worry about that then. But the main concern for me is no longer about economics, but about the risks to our Republic’s democracy. The price of freedom is eternal vigilance.
*What is a banking union? If Arizona elects a bunch of communists or survivalists to run the state, and the state budget explodes as a result, local banks will still be backed up by the Fed. My money will still be safe. I will still be able to withdraw it if I choose. This is what a banking union looks like, and don’t let anyone in Brussels or Frankfurt tell you any different.
By Aedín DorisTuesday, September 1st, 2015
On Wednesday, September 30, we are holding a one-day conference on ‘Higher Education Funding: Drawing on the International Experience’ in Maynooth.
The context for this conference is the debate on how to fund higher education in Ireland. In 2014, the Minister for Education established an Expert Group on Future Funding for Higher Education, and the motivation for the conference is to inform the discussion about the choice of funding options available; we have a particular interest in the interaction between funding mechanisms and differential access to higher education along socioeconomic lines.
International speakers include Sara Goldrick-Rab of the University of Wisconsin-Madison, who has written extensively on the issue of higher education funding in the US; Claire Crawford of Warwick University and the IFS, who has written several detailed analyses of the UK system; and Bruce Chapman of the Australian National University, whose name is particularly associated with income-contingent student loans, both in terms of his academic research and his role as policy advisor to many governments.
Local speakers include Rory O’Donnell of NESC and Delma Byrne of Maynooth University.
The conference will be open to all. I’ll post further details here in the coming weeks.
Update: Full details are now available here.
By Ronan LyonsThursday, July 2nd, 2015
Yesterday, former Minister for Finance Charlie McCreevy appeared before the Oireachtas banking enquiry. His refusal to answer whether or not he believed Ireland suffered a property bubble that burst in 2007 was not only great TV, it also brings up some important issues. For example, the Irish Independent reports:
The conflict arose when Mr Doherty asked the former minister if he believed there had been a property bubble in the previous 15 years before the financial crisis. Mr McCreevy insisted he would only answer for his time in office and there had been no property bubble during that time… [after legal advice] Mr McCreevy said from 2003 to 2007 house prices grew at an extraordinary rate. He supposed that was a bubble. But he said: “I don’t believe the policies I pursued helped to create that bubble.”
The clear implication is that Mr McCreevy believes that, if there was any housing bubble at all, its roots do not lie in decisions made in the period 1997-2004, and that in reality there was no bubble at all. Given the title of my doctorate at Oxford was called “The Economics of Ireland’s Housing Market Bubble”, you might not be surprised to learn that I disagree.
First, I think it is important to note that there are two ways of diagnosing bubbles. They can be thought of as statistical bubbles and economic bubbles. A statistical bubble is one where the growth rate in the price of an asset, such as housing, grows at a rate that is unsustainable for any reasonable period of time. Between 1995 and 2007, house prices in Dublin increased by 300% in real terms (i.e. stripping out inflation), or 12.2% a year. Between 1997 and 2004, McCreevy’s term in office, the increase was 136%, or 13.1% a year. (Nationwide figures are comparable, although slightly lower for the period as a whole, although not necessarily in every year.) Thus, by any statisticians metric, it was a bubble – put another way, if 12% growth had continued for 25 years, a house costing €100,000 in 1995 would have cost €1.7m by 2020.
The June 2015 Fiscal Assessment Report from IFAC is here.
There has been some talk recently about how Greece should take its medicine the way Ireland has. So here is a chart, taken from the IMF’s WEO database, showing the two countries’ structural budget balances as a percentage of GDP:
Even if you start the clock in 2008, there is a sizeable difference. And if you start in 2010, when the programmes started, there is no comparison in terms of the “fiscal effort” made. (And yes, I know, it would be much better to look at ex ante measures of austerity, but this is what was to hand.) On top of that, the multiplier in Greece is presumably larger than in very small and very open Ireland. The EC estimates that it is almost twice as large in this paper, not that I take their Greek multiplier estimate particularly seriously. And finally, there is this chart which a friend sends me.
So, to summarise: the Greeks have done more “reform” than we have, have endured a lot more austerity, and live in a country where the costs of austerity are likely to be higher than here. Perhaps the Irish government might want to tone down its assertions of relative virtue, and display a bit of solidarity with Greece. Is a less deflationary and less creditor-friendly Eurozone not in Ireland’s long term interests, assuming that we remain a member of the single currency?
Except of course that it won’t, for party political reasons. And you can see why. Expect to see more ad hominem attacks on dangerous ex-IMF radicals and other fellow travellers in the months ahead (despite the fact that the government is expecting the electorate’s gratitude for…implementing the programme that the self-same IMF and its fellow-Troika members designed! You couldn’t make it up.).
The latest playbook for the Stability and Growth Pact has been published by the European Commission. Here is a link to the document along with two related press releases.
- Making the best use of the flexibility within the existing rules of the Stability and Growth Pact
- Commission issues guidance to encourage structural reforms and investment
- Frequently Asked Questions
We now have this little matrix:
The Commission’s methodology puts Ireland’s output gap at close to zero so we are in “Normal times". With public debt above 60 per cent of GDP this means that an improvement of greater than 0.5 per cent of GDP in the structural balance is required.
The numbers released with October’s budget would suggest that Ireland is on schedule to achieve this.
This shows an average annual improvement in the structural balance out to 2018 of just over 1.0 per cent of GDP. But these numbers come with a massive health warning. The projections in the outlook are set in terms of the following qualification:
As there are still uncertainties with regard to the interpretation and implementation of the fiscal rules, there is a technical assumption that voted expenditure ceilings remain fixed at 2015 levels. Similarly, taxation measures for the outer years are not embedded in the budgetary numbers at this stage. Priorities, which have been outlined in the Budget and Expenditure Report, will be addressed in subsequent Budgets when there is technical clarity around the quantum of fiscal space.
So no provision has been made for the promised tax cuts and expenditure increases that are being wheeled out on a regular basis.
The Commission document has lots of stuff on how they intend to account for the unknown impact of future reform measures on the unknowable structural balance. If there are going to be new caveats and qualifications every time a country is close to breaching the rules there is a risk that the SGP might become complicated!
From Ireland’s perspective it must be realised that while rules can be good they can never be perfect and there appears to be a risk that our fiscal policy becomes fixated on doing just enough to satisfy the SGP rules. There are frequent references to the amount of “fiscal space” that is available. This will be set relative to the Expenditure Benchmark which is likely to get increased attention when we become subject to it in 2016 upon leaving the EDP.
However, with a continuing deficit and a debt north of 100 per cent of GDP there is close to no fiscal space. In the run-up to the crisis Ireland’s budgets satisfied the rules that were in place at the time. We reached and then stayed at the MTO of a balanced budget but that was no protection against the budgetary collapse that occurred.
The updated rules might be better but there is no evidence that they are a panacea. If they were they wouldn’t need constant updating.
There is lots of excitement this morning about a story in the Financial Times about the European Commission state-aid investigation into Apple’s tax arrangements in Ireland. The story first appeared online under the headline “Apple hit by Brussels finding over illegal Irish tax deals”. When put on the front page of today’s print edition the headline was “Apple hit by Brussels findings over Irish backroom tax deals”. The story begins:
Apple will be accused of prospering from illegal tax deals with the Irish government for more than two decades when Brussels this week unveils details of a probe that could leave the iPhone maker with a record fine of as much as several billions of euros.
Preliminary findings from the European Commission’s investigation into Apple’s tax affairs in Ireland, where it has had a rate of less than 2 per cent, claim the Silicon Valley company benefited from illicit state aid after striking backroom deals with Ireland’s authorities, according to people involved in the case.
The headline and story resulted in widespread opprobrium from the usual sources being directed at Ireland. The reality is that the headline is nonsense and the presentation of the story in the text was misleading (at best). Anyone with even a summary understanding of the issue would immediately see that, but there are plenty who love jumping to and jumping on adverse conclusions about Ireland’s corporation tax regime.
The errors include:
- there are no “fines” in state-aid cases
- the case does not involve “billions of euros”
- there are no “preliminary findings”
- there is no “rate of less than 2 per cent”
And that’s just the first two paragraphs!
At present Apple pays very little corporate income tax on its profit earned on sales made outside the US. These profits will be taxed based on the source-location of the risks, assets and functions from which the profits are derived. The risks, assets and functions that generate Apple’s profits are mainly in the US and under current rules the US is granted the taxing right for the bulk of Apple’s profits. The fact that the US allows Apple to defer the payment of this tax until the profits are transferred to a US-incorporated company is a matter for the US.
Sometimes we tend to use the word “repatriate” when it comes to these profits. But Apple’s non-US profits don’t have to be repatriated to the US; they go there directly and there is no stop-off in Ireland. Yes, Apple’s non-US profits are accumulated in Irish-incorporated companies but almost everything about these companies happens in the US. Using US rules, Apple was able to create this situation and maintain that these companies did not have a taxable presence in the US. The EC investigation will examine none of the headline issues about these companies highlighted in the US Senate Report last May.
The EC can only investigate the taxing of activity that happens in Ireland and decisions that are made in Ireland. In its June announcement, the EC said the Irish element of its investigation relates to:
the individual rulings issued by the Irish tax authorities on the calculation of the taxable profit allocated to the Irish branches of Apple Sales International and of Apple Operations Europe;
It is the profit attributed to just the Irish branches of the companies that is in question not the entire profits of these companies. In his opening statement to the US Senate hearing last May, Sen. Carl Levin (D) said: (more…)
The quarterly changes will attract plenty of attention but little can be judged from them given the volatility of the series, the possibility of revisions and the impact of the MNC and IFSC sectors.
Quarterly Changes: GDP +1.5%; GNP +0.6%
More significantly perhaps are the year-on-year changes for the first six months of the year.
- Real GDP (2012 prices)
- H1 2013: €85,163m
- H1 2014: €90,069m
That is an annual increase of 5.8%. For GNP the equivalent change is +6.0%. Wow!
Value added increased in all sectors when compared with H1 2013: (% = real annual growth, € = amount in 2012 prices)
- Agriculture, Forestry and Fisheries: +11.9% to €2.45bn
- Industry: +0.7% to €22.52bn
- with Building and Construction: +8.3% to €1.51bn
- Distribution, Transport, Communications and Software: +10.9% to €20.35bn
- Public Administration and Defence: +3.7% to €3.22bn
- Other Services (including implied rent): +3.3% to €33.90bn
- Taxes on goods/services less subsidies: +9.8% to €8.31bn
For fiscal rules junkies, nominal GDP for H1 2014 is €90.2 billion. Last April’s Stability Programme Update had a forecast of nominal GDP in 2014 of €168.4 billion. The methodological revisions completed by the CSO over the summer and the recent growth mean that a nominal GDP of around €180 billion is now likely this year. Sticking with the Department’s 3.6% nominal growth projection for next year gives a 2015 figure of €186.5 billion. These increases in the denominator will significantly improve the appearance of fiscal ratios.
Although net exports increased and contributed around 40% of the increase in GDP the remainder is due to domestic demand. Real total domestic demand in H1 2014 is 4.0% up on the equivalent period in 2013. Although all components are up (consumption +1.2%, government expenditure +5.2%) much of the increase is driven by investment which is up 11.3% year-on-year. In recent years much of the volatility in this component has been the result of aircraft purchases by leasing companies based in Ireland.
The current account of the Balance of Payments shows a surplus of 4.3% of GDP for H1 2014 compared to one of 2.5% of GDP for H1 2013.
In his press conference yesterday, Mario Draghi said the following:
Within the Stability and Growth Pact, one could do things that are growth-friendly and also would contribute to budget consolidation, and I gave an example of a balanced budget tax cut. Reducing taxes that are especially distortionary, where the short-term multipliers could be higher, and cutting expenditure in the most unproductive parts, so mostly, actually not mostly, entirely, current government expenditure.
There are at least three possible interpretations of this statement.
1. Draghi genuinely thinks that balanced budget multipliers are negative, which I find hard to believe. A balanced budget tax cut under current circumstances would be contractionary, not expansionary; at least, that is what we teach our students.
2. Draghi genuinely thinks that the Eurozone’s problems right now are on the supply side, and that tax cuts will help address these problems. I also find that hard to believe. The major problems facing the Eurozone right now are pretty clearly on the demand side.
3. Despite its nominal independence, the ECB is in fact the most politically constrained of the major central banks. If Draghi is going to push the ECB towards QE, and question the overall fiscal stance of the Eurozone, he has to come out with this sort of stuff from time to time, to appease the Germans.
I find the last of these three explanations entirely plausible, and it helps explain the ECB’s poor performance in the crisis to date. But why should a nominally independent central bank feel that its hand are tied in this way? Ultimately, perhaps, because the Eurozone is not a political union, and because democratic legitimacy resides at the level of the member states. This means that exit from the Eurozone is always an option, even if it is not openly acknowledged.
Another reason to think that monetary union without political union is a bad idea.
The CSO have published the end-2013 update of these series:
There isn’t much to surprise in the figures. Gross debt at the end of 2013 was €203 billion (124 per cent of GDP). Once offsetting assets of €42 billion in the same categories are accounted for net debt was €161 billion. The assets were:
- Cash: €23.8 billion
- Bonds: €10.8 billion
- Loans: €7.1 billion
Other assets not used in the net debt calculation are include shares and other equity of €29.8 billion and other financial assets (mainly accounts receivable) of €9.2 billion.
The market value of Ireland’s €203 billion of nominal debt instruments was €219 billion at the end of the year. The estimated pension liabilities of the government are put at €98 billion, while contingent liabilities are “just” €73 billion.
The 2013 general government deficit is provisionally estimated to have been €11.8 billion (7.2 per cent of GDP) from €13.4 billion in 2012.
The ‘operating balance’ of the government sector went from a deficit of €12.5 billion in 2012 to one of €11.8 billion in 2013, an improvement of just €0.7 billion. The improvement in the overall deficit was greater because of changes in the capital budget.
Gross fixed capital formation was further reduced from €3.1 billion in 2012 to €2.7 billion in 2013. With consumption of fixed capital at €2.3 billion the increase in the public capital stock was just €0.4 billion. The main change in the capital account was a €0.7 billion gain in the ‘net acquisition of unproduced assets’ which likely relates to things such as mobile phone and lottery licenses.
Revenue from taxes and social contributions rose from €49.1 billion to €51.6 billion, while investment income was up around €0.5 billion to €2.7 billion. Much of these increases were offset by an increase in interest expenditure of €1.5 billion to €7.4 billion. Social transfers paid decreased from €29.0 billion to €28.6 billion, of which €24.0 billion were in cash.
The table below has eight different answers that are used to address the question of the effective rate of corporate income tax in Ireland. Some of the details behind each approach are in this DoF Technical Paper (done jointly with Kate Levey) with #3 and #5 judged best for gauging the effective tax rate on the aggregate total of corporate profits in Ireland.
But, of course, the choice is yours.
By David MaddenThursday, February 13th, 2014
The Irish Government Economic and Evaluation Service has launched its new website at http://igees.gov.ie/
Organised jointly by the ESRI, Dublin Economic Workshop, UL, and UCD’s Geary Institute, this year’s policy conference (see previous years here and here) will be on the theme of economic policy after the bailout. This conference brings policy makers, politicians, civil servants and academics together to address this question of national importance. The venue will be the Institute of Bankers in the IFSC. (Click here for a map).
Date: 31st January 2013
Venue: Institute of Bankers, IFSC
9:15 – 10:45: Plenary: The Impact of the Crisis on Industrial Relations
Chair: Aedín Doris (NUI Maynooth)
- Kieran Mulvey (Labour Relations Commission) Prospects for Pay and Industrial Relations in the Irish Economy
- Shay Cody (IMPACT Trade Union) “The impact of the crisis on industrial relations – a public service focus”
- Michelle O’Sullivan/Tom Turner (University of Limerick) “The Crisis and Implications for Precarious Employment’”
10.45-11.15: Coffee Break
11:15 – 12:45: 2A. Migration and the Labour Market
Chair: Philip O’Connell (UCD Geary Institute)
- Piaras MacÉinrí (UCC) ‘Beyond the choice v constraint debate: some key findings from a recent representative survey on emigration’
- Peter Muhlau (TCD) “Social ties and the labour market integration of Polish migrants in Ireland and Germany”
- Alan Barrett (ESRI & TCD) and Irene Mosca (TCD) “The impact of an adult child’s emigration on the mental health of an older parent”
2B. Economics: Teaching and Practice
Chair: Ronan Gallagher (Dept of Public Expenditure and Reform)
- Brian Lucey (TCD): “Finance Education Before and After the Crash”
- Liam Delaney (Stirling): “Graduate Economics Education”
- Jeffrey Egan (McGraw-Hill Education) “The commercial interest in Third Level Education”
12:45 – 1:45: Lunch Break
1:45 – 3:15: 3A. Health and Recovery
Chair: Alex White, TD, Minister of State
- David Madden (UCD) “Health and Wealth on the Roller-Coaster: Ireland 2003-2011”
- Charles Normand TCD) and Anne Nolan (TCD & ESRI) “The impact of the economic crisis on health and the health system in Ireland”
- Paul Gorecki (ESRI) ‘Pricing Pharmaceuticals: Has Public Policy Delivered?”
3B. Fiscal Policy
Chair: Stephen Donnelly TD
- Seamus Coffey (UCC) “The continuing constraints on Irish fiscal policy”
- Diarmuid Smyth (IFAC) ‘IFAC: Formative years and the future’
- Rory O’Farrell, (NERI) “Supplying solutions in demanding times: the effects of various fiscal measures”
3:15 – 3:30: Coffee Break
3:30 – 5:00: Plenary: Debt, Default and Banking System Design
Chair: Fiona Muldoon (Central Bank of Ireland)
- Gregory Connor (NUI Maynooth) “An Economist’s Perspective on the Quality of Irish Bank Assets”
- Kieran McQuinn and Yvonne McCarthy (Central Bank of Ireland) “Credit conditions in a boom and bust property market”
- Colm McCarthy “Designing a Banking System for Economic Recovery”
- Ronan Lyons (TCD) “Household expectations and the housing market: from bust to boom???”
This conference receives no funding, so we have to charge to cover expenses like room hire, tea and coffee. The registration fee is €20, but free for students. Please click here or on the link below to pay the fee, then register by attaching your payment confirmation to an e-mail with your name and affiliation to email@example.com. [Block bookings can be made by purchasing the required number of registrations and then sending the list of names to firstname.lastname@example.org]
Today’s CSO readings are good news and should be seen in their recent historical context.
News headlines are pointing to the ‘domestic’ part of the economy experiencing an uptick. Let’s look at final domestic demand as one measure of this. The two figures below bear this out, with the latest data coloured in red, and the series indexed to 2008 Q1, the peak of final domestic demand. The first plots out the movement from 2002 until 2013 Q3, the second from 2010.
The clear uptick can be seen, but the economy is obviously still fragile and the uptick, in the context of a rather demand-depressed economy, shouldn’t be overstated.
The latest report from the FAC is available here.
Using standard provisions in tax codes internet companies face low or no corporation tax bills in the countries of their customers. This issue has been repeatedly raised in the UK by Margaret Hodge, chair of the Westminster Public Accounts Committee. In relation to Google in particular much of the focus has been on whether Google has a permanent establishment in the UK.
This issue is also agitating the chair of the Italian lower house Budget Committee, Francesco Boccia, who has drafted a bill to try and force companies like Google to engage with their customers in Italy through a party that has a permanent establishment in Italy. See this report from Reuters.
The proposal would not tax the multinationals directly but would force them to use Italian companies to place their advertisements, rather than doing so through third parties based in low-tax countries like Luxembourg, Ireland or outside the European Union.
Doubts about the feasibility of such a proposal seem justified but it does show someone trying to take some action on this issue.
The Staff Report on the Commission’s latest review of Ireland’s EU/IMF programme is now available. It does not contain much that is new. There is this on page 20.
Ireland’s fiscal stance has not been overtly pro-cyclical since the beginning of the crisis. Using conventional metrics, discretionary fiscal policy has been clearly leaning against the wind in 2008 and 2009, and did not move openly or blatantly into the wind in 2010 and after, in spite of the significant budgetary adjustment efforts put in place by the Irish government (Graph 2.1) (14). Fiscal policy remained, and is expected to remain broadly in line with the stabilisation function of discretionary fiscal policy, or at least not to run counter that function. In the early years (2008-2009) when fiscal policy was incontrovertibly counter-cyclical, the fiscal policy strategy mainly consisted of correcting previous policy commitments built on optimistic growth projections accompanied by the fact that in a deflationary environment, nominal expenditure freezes implied increases in real terms. Since 2011, the improvement of the structural deficit has taken place in an environment of slightly improving economic conditions.
This is Graph 2.1. Click here to enlarge.
Maybe footnote 14 is important:
(14) The structural changes of the economy during the economic crisis are beyond normal business cycle fluctuations. Therefore, potential growth and structural government balance estimates need to be treated with caution.
Representatives of the UK’s Revenue and Customs appeared yesterday before the Public Accounts Committee of the Houses of Parliament. The exchanges were interesting though the evidence from the HMRC officials was sometimes confusing. Following on from previous work done by the committee much of the focus was on corporation tax with issues relating to tax residency, tax compliance, the tax gap and permanent establishment among those referred to.
The questioning from the committee chair, Margaret Hodge, was forthright but at times slipped into grandstanding, primarily a suggestion that the Revenue show take “a few show cases”. Ms Hodge also wanted the Revenue to estimate how much the tax gap would be if it was calculated “between the money that you collect and the money if everyone paid their fair share”. Of course, “fair share” is an alien concept to tax collectors; their job is to collect what the tax code prescribes. Unless something illegal is being undertaken the answer to such a question in relation to MNCs will be close to zero. If the UK wishes to collect more corporation tax Parliament changing the tax laws would be more effective than the Revenue undertaking some show cases.
An investigation into Google’s activities was alluded to through an exploration of documents provided by a former employee but it is not clear that it will lead to a change in the judgement that Google does not have a permanent establishment in the UK.
I don’t know if the Houses of Parliament make transcripts of the committee sessions available. The transcript of a recent appearance by our Revenue Commissioners at a sub-committee of the Oireachtas Finance Committee is available here.
A Bloomberg feature on some elements of the Irish corporation tax regime was also published yesterday.
UPDATE: A transcript of yesterday’s Commons PAC hearing is here (H/T Gavin).
Òscar Jordà, Moritz Schularick, Alan Taylor have a new piece on the issue, available here.
The Dutch Sandwich and Double Irish figure prominently in this FT article about Google’s tax returns for 2012.
It seems that Google Netherlands Holdings, which represents the Dutch part of the sandwich, received €8.6bn in royalties from Google Ireland Ltd last year.