I don’t care if it’s legal – it’s wrong. With these seven simple words, President Barack Obama drove a six-inch nail through the heart of Irish multinational tax policy and the legal jiggery-pokery that allows American companies to ”pretend they are Irish when they are not.
Obama told a Californian audience during the week: ”You don’t get to choose the tax rate you pay. These companies shouldn’t either. Donning the tunic of a patriot, he described these companies as ”corporate deserters.
He added: ”What we are trying to do is to say that, if you simply acquire a small company in Ireland or some other country to take advantage of the low tax rate [and] you start saying, We are now magically an Irish company’, despite the fact that you might have only 100 employees there and you have got 10,000 employees in the US, you are just gaming the system, he said. ”You are an American company.
Gone is all the Moneygall stuff. Gone is the pint of Guinness in Offaly and the sprig of shamrock in the Oval Office on St Patrick’s Day. This is the real deal.
America will no longer tolerate corporate tax avoidance. It has a $130 billion deficit to plug and it wants its tax dollars. In this type of mood, it is only a small jump from here to moving on the commitments made at the G8 last year in Enniskillen, namely that there will be a standardised tax rate for global corporates to prevent funnelling money through places like Ireland to avoid their own tax liabilities.
The problem is that this effective Irish rate of 12.5 per cent cannot be taken at face value, due to the use of intercompany charges by heavyweights such as Google and Microsoft to minimise their reported income.
This so-called ”double Irish method involves shuttling profits in and out of Irish subsidiaries, largely avoiding the 12.5 per cent rate.
For example, Apple paid $713 million in corporation tax on foreign profits of $36.87 billion during the fiscal year of 2012. This corresponds to a mere 1.9 per cent, a solid 10 per cent lower than the effective rate which our government claims.
This is different from the corporate ”inversions to which Obama was directly referring, but it is now all becoming part of the same story.
For the past few years, this column has been arguing that the global tide is turning against the type of ”beggar thy neighbour tax policies which we facilitate.
Ireland’s choice has always either been to do something about this or stick our heads in the sand. We have, up to now, chosen the latter option and sided with the ”corporate deserters.
Rather than see this global change of tune as a threat, we should regard it as an opportunity to rebalance the economy so that we, the Irish people, don’t get the mickey taken out of us in terms of tax.
At the moment, foreign capital is taxed notionally at 12.5 per cent, and the normal workers of the country are facing tax rates that are multiples of that. Is this fair? Is it sensible?
Let’s be clear here. Multinationals in Ireland do not pay 12.5 per cent tax. They pay a lot less than that on profits, and some of them pay in low single figure percentages. This is a joke, and the joke is on you because that which they don’t pay, you do.
One of the reasons why Irish citizens, small businesses and embryonic start-ups are hammered with all sorts of taxation is partly because multinationals don’t pay their fair share.
This stands to reason. If we have a certain bill for running the country (the amount of which we can argue about), and yet one section of the economy is treated differently and more leniently to other parts in terms of what it pays, then the other sectors, by definition, pay more.
The multinationals operate in this country like every other business. Children of their employees go to our schools like the rest of us. Multinational executives drive on our roads, drink our water, use our electricity and get seen in our hospitals like everyone else. Their managers and workers were educated by our state.
These companies are not corporate colonialists living in an economic garrison; they exist as part of a functioning society. And so they should treat us with respect, and pay the modest amount of tax which we – and every country – expects them to.
Reassessing what multinationals pay is not some pseudo-communist idea about taxing capital. It is quite the opposite, and is a legitimate building block of a sensible and entirely reasonable policy where each sector pays its fair share.
In demanding that multinationals actually pay 12.5 per cent – the actual corporate tax rate – Ireland is still one of the most attractive places to invest in the industrialised world. However, the income of the citizens of the country and the returns on foreign investment would at least begin to be treated similarly.
As things stand, the deal that multinationals get in Ireland is phenomenally good for them.
Latest US tax figures indicate that profits per employee at US-owned companies in Ireland are at $970,000, whereas the corporate tax paid in Ireland per employee is just under $26,000. This is a deal like no other for the multinationals.
According to the US Bureau of Economic Analysis, US multinationals in Ireland reported net income of $95.6 billion. These firms employ 98,500 people here, which gives profits per employee of the aforementioned $970,000. In contrast, according to the IDA, tax paid per employee of multinationals to the Irish exchequer was €19,000, or $25,840 at today’s exchange rate.
The American data revealed that ”taxes other than income and payroll taxes payable in Ireland in 2010 amounted to €2.4 billion, giving an effective rate of tax of 2.5 per cent – far below the official headline rate of 12.5 per cent.
If these companies were even to deign to pay tax at the very low (by international standards) rate of 12.5 per cent, the exchequer would net €12 billion in corporation tax per year. €12 billion! No doubt some other jurisdictions would claim they should have a share of this, and some companies might up and leave, but if we phased it in gradually, the gain to Ireland could be huge. The budget deficit would be eliminated immediately, and the country would run a surplus.
The multinationals would still be making over €800,000 profit per employee here, so they could hardly complain. Ireland would remain one of the most profitable locations in the world for US multinationals.
The global tax debate has begun, and we should make our own constructive proposals to influence the outcome, rather than stick our heads in the sand and have a solution foisted on us. Obama couldn’t have been clearer. Let’s listen up.
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Does Enda read this?
@ Patrick.
‘Enda couldn’t get out of his own way’!
David, couldn’t agree more with what you had to say!!!
As we all know as we’re paying the cost of our banking fiasco: politics by design is reactive. Our politicians will react and adjust our 12.5% corporate tax just as Obama’s patriotic, moral call on US multi-national tax avoidance is equally reactive. Apple is the epitome of US Corporate multi-nationalism…. Anyone bought an Apple product recently? In the last two years? The words “Designed by Apple in California” are placed up front and centre in recent products and the latest Mac Pro is “Manufactured in the USA”, with Tim Cook’s long term agenda of ‘bringing it all back home’. Would… Read more »
Since 08 the Irish economic situation has been scrutinised by member states of the EU and outside to see just what the dickens is going on. I suspect France Germany and the US have been shocked with the sheer incompetence. Where the idiotic venal scrots have designed a system to provide gain to themselves. Can you imaging the briefing documents handed to Obama or the Chancellor on any aspect of this polity. Nothing is as it seems. We have Waterford and Limerick without an ounce of employment prospect from native enterprise. Nary a bit of real investment. But still, the… Read more »
I have a simpler solution; Make income tax 12.5%.
Great article, a good complementary piece to this is Will Goodbody’s piece about the state of the Irish software sector. Between the two articles they give a good picture of where we actually are and where we could be if we just had the right government policies.
http://www.rte.ie/blogs/business/2014/07/14/the-hard-reality-of-the-irish-software-industry/
I don’t meant to sound negative every time I come on here but, being realistic – the useless, incompetent and corrupt Irish government is going to do diddly squat when it comes to this issue and yet another opportunity will be pissed up against the wall.
There you go again Mc Williams, being the outlier, trouble maker, talking sense, begorrah man these men in the Dail are trying to have a holiday could you just leave it for now!
Obama’s talkin’ thru his h*le. He’s a lame duck president facing into his final mid-terms. You’re looking at him and thinking “the leader of the free world is about to come down on us like a ton of bricks”. Wrong! Try this: picture Obama’s face; now, in your minds eye let the face morph into our beloved leader Inda. Listen to what he’s saying: “ah lads, we’ve done shite in de locals … what can we say dat’ll make us popular again with de plebs?” Now you’ve got it. Obama is the same populist windbag as any parish pump Irish… Read more »
Here we go again. It’s time to blame the other guy. Obama’s doing it and now DMcW is doing it. The Americans need to address their ridiculous budget deficit and their corporatist culture. In terms of getting into bed with the White House, there are more companies in that position than there were interns and movie stars under Clinton and Kennedy. While they bail out companies like GM, they also give them special conditions to operate under. “GM received an “automotive interest expense,” tax credit from the government, which was related to impairment of assets and amortization.” (http://www.marketwatch.com/story/10-us-companies-paying-no-taxes-2013-03-26) There are… Read more »
Doesn’t this just kick the can down the road? Suppose you (they) set up a confidential entity/company is a country outside the G20, for example an international business corporation based in Belize. Say then that their Euro/American company operates doing low-profit operations as a client of the Belize based IBC, which holds all the profits tax free. Whats can they do about that?
Corporate Tax Arbitrage was a temporary opportunity/problem but like Global Wage Arbitrage faces the Black Swan of Robotics-led Onshoring, the Citizen Occupy-outrage stuff about Nation States bluffing Corporate Tax Whites is reaching a crescendo. GOOD!
This article is a timely reprise of Mr McWilliams closing Sun evening pitch at Kilkenomics 2013. I was dozing off in the balcony but that was cause someone gave me a mega-measure of brandy in Bridie’s the night before. Or was it whiskey?
This boat is moving fast towards Dublin. Ireland Inc needs a newe upcycled unskilled iteration.
Back in 2002 Donal Denham, the current Irish ambassador to Finland, was the newly appointed Consul General at San Francisco. Immediately prior to coming to California he had served at the Department of Enterprise, Trade and Employment. He went straight to work aggressively selling Ireland as a tax haven. No doubt his Dublin in-house training was what got him the San Francisco gig. I went to one of his Ernst & Young seminars explaining the ins and outs of what became known as “double Irish”. I was shocked because at the time Ernst & Young were under investigation by the… Read more »
Belize as the next whore that takes our trade? Anyone?
What can’t that happen?
David if what you say is correct why hasn’t Delaware been shut down as a tax haven? It’s a global economy no Government can put the genie back in the bottle. This was a message for a local electorate just like Mr. Obama did the Pint O’ Guinness routine and “I’m Barack O’Bama from the Moneygall O’Bamas for a specific electorate. It’s just politics. Virtually every major corporate is registered in Delaware for tax saving purposes. We could learn a Delaware trick and up our game on Corporate law. Part of the attraction of Delaware is the speed of resolution… Read more »
No sign of Jwill tonite?busy playing scrabble i suppose and no Michael Coghlan for ages?
Really flying through the posts now…Completely agree with the sentiment in this. However, I really doubt whether Obama or any other American politicians will take on the American multinationals over this.
We are overleveraged in many senses. Financially socially and intellectually. Over-reliant on borrowing, because we decided sometime in the 1990s to adopt a superficial cultural more that valued the impression above the underlying reality. There is an intellectual battle going on in Ireland between the advocates of more Ponzi-economics, and common sense. You see this in the property market, ultimately. If the laws change with respect to double-tax arrangements and other funny business, then the Ponzi-economics racket will take a massive hit. The response of the state will be more taxes, and more “bottlenecking” of housing supply on the east… Read more »
Don’t worry. It’s been clear for years that the USA and EU would eventually clamp down on Irish corporate tax. I’m sure our government have planned for it and have a brilliant plan B waiting in the wings.
You are dead right David. At least enforce the 12.5% rate. Our revenue people are extremely efficient at enforcing our self-employed and SME’s to cough up, not to say ruthless. Why are they such wimps when it comes to the big guys with the big bucks. We are supposed to be globalised, so we should have global tax fairness, or does globalisation only apply to making profit?
Written by Pól Ó’Braonáin and derived from an ancient text from Galway, explains how in war and in violence,no side wins – that all lose! http://www.youtube.com/watch?v=QWKpF0ETjLI (1983) Imtheochaidh soir is siar – I will go east and go west A dtáinig ariamh an ghealach is an ghrian – From whence came the moon and the sun Fol lol the doh,fol the day Fol the doh,fol the day – port(aireacht)béil – Gaelic ‘lilting’ Imtheochaidh an ghealach’s an ghrian – The moon and the sun will go An duine óg is a cháil ‘na dhiadh – And the young man with his… Read more »
Bonbon, Switch off that computer right now. Take a walk down to the local and have a few beers, maybe a chat and get back in touch with reality. It’ll do you good.
TINA There Is No Alternative. Due to the chronic cost base inefficiency that exists in Ireland (where state taxes/levies, state underperformance, industry association pricing, agreed “bottlenecking” (like in real estate) and private sector oligopolistic pricing exists) – There is no alternative to generating economic activity, except by offering foreign MNCs tax terms that are ridiculously cheap. TINA. We are underpricing ourselves in one section, and over-pricing ourselves in another. And we need to learn from Denmark, or Germany how to make the state more efficient. The amount of clientelism that exists, and the vast army of quangos and private organizations… Read more »
Monbiot repackages his usual opinions but that doesn’t make them any less true:
http://www.monbiot.com/2014/07/29/unmasked/
“I don’t care if it’s legal – it’s wrong.” is just pure political posturing – it’s as absurd as saying that something, socialism for example, is “good in theory and bad in practice”. When theory and reality disagree, it the theory that’s wrong, not reality. If the law doesn’t fit, then change the law, and the US has many options to force their multinationals to do what the government wants. Do it where we can all see it, make a clear, unambiguous statement of intent by signing a law. Anything else feels like backstairs intrigue, dodgy goings on in smoke… Read more »