Last Thursday at the bar of Na Fianna GAA club in Glasnevin, I chatted to two Irish entrepreneurs who have a successful software company about the unintended negative consequences Ireland’s multinational tax policy has on their business.
They maintained that because the multinationals pay much less tax than local Irish companies do, the multinationals can always pay more than the local companies for talent. This is a serious problem for them and given this state’s obsession with large multinationals as opposed to small Irish companies it is an argument we rarely hear.
(You might say: ”Typical McWilliams, goes to a GAA club and talks about tax policy at the bar!” Fair point. Guilty as charged.)
They weren’t the only people talking about multinational tax this week. On Friday, the OECD held a two-day global forum to come up with policy initiatives to prevent global corporate tax evasion. More seriously, last Tuesday, the US finance committee on Capital Hill heard proposals that would have a dramatic impact on Irish policy.
So if the rest of the world is talking about multinational tax and Ireland is firmly in their sights, why don’t we? The elephant in the room simply can’t be ignored.
The government promises a new economic strategy for Ireland. It will wax lyrical about sovereignty, fairness, efficiency and job creation, but precious little is likely to be said about taxation and, in particular, the way we tax multinationals.
How are we going to deal with multinationals in the next five years against a background clamour all over the world to clamp down on corporate tax avoidance? Indeed, today’s clever tax avoidance strategies are likely be tomorrow’s criminal tax evasion tactics, so what are we going to do about it?
Lets be clear. Multinationals in Ireland do not pay 12.5 per cent tax; they pay on average 2.5 per cent tax on profits. This is a joke and the joke is on you because that which they don’t pay, you do.
One of the reasons Irish citizens, small businesses and embryonic start-ups are hammered with all sorts of taxation is 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) 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 tended 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 Marxist tract 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.
Indeed, this question is part of the bigger process of national self-reflection – a sort of unforgiving economic and moral inventory – that the post-bailout environment could facilitate. This long-overdue conversation is part of the broader discourse about what type of society do we want to live in and what type of economic policies support that vision.
By demanding that multinationals actually pay 12.5 per cent – the actual corporate tax rate – Ireland would still be one of the most attractive places to invest in the industrialised world. However, the income of the citizens of the country and the returns to capital foreign investment would at least begin to be treated similarly.
The 12.5 per cent rate is still way below the 50 per cent plus marginal rate paid by many tens of thousands of Irish workers and still far, far below the level levied on corporations elsewhere.
As things stand, the deal that multinationals get in Ireland is phenomenal.
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 in Ireland, which gives profits per employee of a whopping $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 reveals 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 headline rate of 12.5 per cent.
If these companies were to pay tax at the very low – by international standards – rate of 12.5 per cent, the exchequer would net Euro 12 billion in corporation tax per year. €12 billion! No doubt some other jurisdictions would claim they should have a share of this, but Ireland is currently where the profits are booked.
The gain to Ireland would be huge. The budget deficit would be eliminated immediately and the country would run a surplus.
Multinational profits
The multinationals would still be making over €800,000 profit per employee here, so they could hardly complain. Ireland would remain one the most profitable locations in the world for US multinationals.
Quite apart from the obvious benefits to Ireland, another reason we should close off tax jiggery pokery is the world is moving swiftly against countries that encourage tax avoidance vehicles.
For example, in the US on Tuesday, a proposal from the Democrats on Capitol Hill aims to impose a 20 per cent tax on an estimated $2 trillion of cash held overseas by American multinationals. The Americans want to clamp down US companies keeping their profits overseas. US tax on repatriated cash is a significant 35 per cent.
The Democrat finance committee, with the support of President Obama, argues that this move will generate more than $200 billion in revenue for the US government.
President Obama likes this simplicity and stated on Wednesday ”rather than a whole bunch of tangled laws that incentivise folks to keep money overseas, let’s have a modest but clear global minimum tax”.
So you can see where this is going. And of course where do you think enormous amounts of US multinational money is on deposit? Yes you guessed right, in the deposit accounts of the big US banks in the IFSC.
So it’s crucial we move in step with the rest of the world. Ireland has so much to gain from this and little to lose. At the moment we are riding a tax-arbitrage bubble, that will burst as political leaders in Washington, Brussels and Berlin close off loopholes and deviant fiscal behaviour. And this will be spun as a morality issue – which in a sense it is.
You could look at us as a sort of weird red-line district for tax fetishists where companies are allowed do all sorts of stuff they would dream of getting up to at home! Of course these types of deviant tax zones attract all classes of fiscal perversion, and if there are companies in Ireland that exit here only to avoid tax and have no real business here, well these are not the sorts of people a respectable economy should want to deal with. And if they moved to seek out the more exotic tax practices of committed tax havens, good riddance to them.
Proper businesses will stay because it is profitable and everyone will be better off. It’s a ”no-brainer” really.
David McWilliams hosts the Winter Tales’ book festival at Dalkey on December 7. Tickets www.dalkeybookfestival.org
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Typical McWilliams, goes to a GAA club and talks about tax policy at the bar!
Ireland’s Empty Gesture on Curbing Offshore Tax Abuses 131017 http://www.ctj.org/taxjusticedigest/archive/2013/10/irelands_empty_gesture_on_curb.php
If Ireland Is Not A Tax Haven, What Is It?
http://www.forbes.com/sites/taxanalysts/2013/11/06/if-ireland-is-not-a-tax-haven-what-is-it/
Excellent article. We had Las Vegas on the Liffey – a red light district for banks to gamble and engage in all sorts of reckless behaviour that they could not do at home. And it resulted in a lot of phoniness with respect to the GDP figures in the middle of the last decade. It is all connected very tightly with Ireland’s political layer, with John Bruton as international ambassador for the IFSC. We also have a similar scenario with respect to west coast US multinationals who have their HQ in Ireland. One of the consequences of Las Vegas on… Read more »
Apart from anything else, there is a boom at the moment in the technology sector which is liable to hid th skids at some point in the next twelve months. We are back once again in “irrational exhuberence” territory – with companies being valued on the PS ration Price to Sales. This is because their revenue model is deemed more important than their actual profits (because their profits are marginal). When you have stock valuations based on a model rather than a rate of return, the market is meandering into virtual territory. And out of the real. Another bubble in… Read more »
There seems to be some confusion here. Are these multinationals stealing revenue from Ireland, the US, or Britain? Lets agree that they should pay more tax. Claim 1: David is arguing for the theft from Ireland, because their managers were educated here ( not necessarily, of course) and their children go to school here. But the managers easily pay for that with their PAYE tax, if they aren’t in tax deficit then who are? The corporation presumably pays for electricity etc. Claim 2: The US is arguing ( see the Forbes) argument, that the low subsidy here is a subsidy… Read more »
Of course the irony of atracting businesses to Ireland, on the basis of them paying a low tax rate on their profits, is kind of absurd, when they are not making much profit.
Except that it is part of their pretence that they will make massive profits that has them locating here in the first place. It impresses investors. And in a low interest rate environment, investors are gasping for the promise of yield, and capital gain.
There is too much of the charade going on, with respect to the social media boom.
[Dermot] Desmond was one of the creators of the Irish tax haven: a mucky, lax combination of corporate tax avoidance (see the “Double Irish Sandwich, for instance) and financial regulatory avoidance that has been quite heavily implicated in the global financial crisis that erupted in around 2008.
Irish tax haven creator rings LSE bell on Tax Justice Network 130418
http://taxjustice.blogspot.ie/2013/04/irish-tax-haven-creator-rings-lse-bell.html
We just need to insist that they pay the tax that they claim to pay. That is sufficient.
Current state policy is use multinationals to sustain suspect GDP statistics, and to sustain an overly complex state system by using the people.
Would giving the civil service an extra undeserved 12 Billion to play with would result in any benefit to our society?
Of course not, it would only result in civil service pay increases and more civil servants.
“if there are companies in Ireland that exit here only to avoid tax and have no real business here, well these are not the sorts of people a respectable economy should want to deal with.” Well that’s my respectable job gone, then. My employer, a US IT Multinational, relocated it’s international HQ from the UK to Ireland a number of years ago. When they were interviewing me, I asked why they had done that? The answer was a single word : “Tax”. Honestly, they have no other reason to be here – no customers, no capital investments – and if… Read more »
I would add that whatever revenues raised via tax, need to be spent realistically for the benefit of society, not a select few top tier trough feeders and parasites. When running my business I have to adjust based on cash flow, having a windfall does not necessarily mean spending immediately, all cash is guarded, all expenditure justified and thought out before any cheques are signed. This is the complete opposite for government, which is ultimately run by people who see no intrinsic value in money, who constantly talk in billions as if it makes them sound more learned than they… Read more »
Excellent & Insightful I am in agreement with the message of the story . However I am questioning a few small issues : The said Company Profits are ‘Booked Profits’ .This means total income did not derive from Ireland and calculations are not all Cash Profits ; and Capital Allowances do reduce the Taxable Profits and the Capital Expenditure and R&R is usually significant compared to ordinary Irish companies.This reduces the effective rate of CT liability . Profit per Irish Employee does not include foreign subcontractors and agents in other countries that are usually in the marketing field .There are… Read more »
This excellent article echoes the final “Ten More Ideas To Help Ireland Recover and Grow ” session at Kilkenomics 2013, and may help progress a tentative national conversation about another element of the moral collapse of the 1st Irish Republic. However, it’s only beginning to sketch the dimensions of the Corporate Tax Crisis in Ireland and across the globe. It’s time to join up the dots of the geo-political tax arbitrage assault on the foundations of the Nation State by feral Corporations, using dens of iniquity such as Wall Street, The City’s Canary Dwarf and the IFSC’s Canary Dwarf to… Read more »
My guess is nothing will change here for similar reasons outlined in “The Good Room”. Irish ministers will quake in awe and admiration of American executives, and have an attitude of “sure if we go asking them for money we might annoy them and they might go home, aren’t we lucky to have them at all”. No such fear when it comes to the rest of us though. As for moving forward I would guess based on past evidence our government will probably not even be very much aware of developments in corporate taxation globally, reacting only when they have… Read more »
This is a difficult area to regulate. And regulation requires backbone. Something usually missing in the sleeveen mentality run state.
This important excellent article: We are told that the likes of Starbucks create jobs but there is no special technical knowhow in making coffee, Starbucks does not create jobs the people that drink coffee create these jobs. Starbucks is an importer of coffee beans and exporter of profits this is net loss for Ireland. The government incentives allow for the export of Irish people’s money directly into to the hands of foreign owned company shareholders with no gain of any sort to the Irish economy. The movement is incentivising the export of Irelands money… Stabucks is now run by TGI… Read more »
From the UK
Atos Paid No Tax In 2012 Despite Boss Earning £2.3 Million
http://johnnyvoid.wordpress.com/2013/11/13/atos-paid-no-tax-in-2012-despite-boss-earning-2-3-million/
Great article,…
really enjoyed it..
Think it hits nail on head
While I completely agree the concept of everybody paying their fair share of the bill, I think the figures should be restated as the total 12.5% tax bill on Net income USD$95.6 Billion should be USD$12 Billion / EUR€8.8 Billion @ USD$ rate 1.36!!
No matter it would still get us out of a hole and be far more equitable!!
Sláinte,
MD.
European crackdown on tax cheats proposed
http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=11162775
“Of course these types of deviant tax zones attract all classes of fiscal perversion, and if there are companies in Ireland that exit here only to avoid tax and have no real business here, well these are not the sorts of people a respectable economy should want to deal with. And if they moved to seek out the more exotic tax practices of committed tax havens, good riddance to them.” “EXIT” I assume you mean ‘exist here only to avoid tax’ ———————————————————————– Being a citizen of a nation and a member of a society comes with societal and behavioural responsibility.… Read more »
Please don’t mention Bono and I am not being sarcastic
[…] full article at source: http://www.davidmcwilliams.ie/2013/11/25/whats-to-be-done-about-tax […]
It’s DMW fault as he is teaching economics without boundaries
Thank God it is another DAY
Tax Arbitrage is a creative imaginary philosophy that has pragmatic relief and recognises something that in fact does not exist in real value .It is deeply religious and has a following from business leaders that are often ex religious order members . It is akin to primitive values for money when rocks were held in esteem as we recognise gold today . And gold is a rock too only that we worship it . Like money it is given a value and its value can change depending on location and the symphony of its economic musical it was originally set… Read more »
EC plan on tax loopholes won’t hit us – Government
http://www.independent.ie/business/ec-plan-on-tax-loopholes-wont-hit-us-government-29783566.html
News update.
http://www.bloomberg.com/news/2013-11-26/bershidsky-on-europe-eu-acts-on-tax.html
Hybrid structure tax schemes are going to get wound down.
David McWilliams
You have often written about your travels in Europe especially during family vacations and with the dog too . Mostly you seem to be driving through the Continent .Am I correct to believe that you have ventured in your family car as far as the Slave countries too ? That is a very long drive .
Mr Bean is a notoriety on cars and has appeared on the TV car programmes too .Maybe you should add this to your repertoire.
There is a U2 and Riverdance tiptoing going on around the issue. Not a mention about the so-called “transaction tax” movement in the EU and Wall Street “to deflate the bubbles”.
Obama has personally said no to Glass-Steagall and his owners in Britain have made it clear any move towards Glass-Steagall would be a “hostile act”. So we are to listen to “alternative” pabulum instead?
Or is DMcW about to come out in favor of the “transaction tax”?
By the away, what was this inanity about : http://en.wikipedia.org/wiki/U2_Tower
A U2 “pod” overlooking the IFSC? And DMcW rails about property porn?
Yo whatamess,
You still on your hols?
Renting jet-skis for 200 sovs an hour… way to kickstart the greek economy, huh!?
I think after reading some posts here DWW excellent question has been clearly answered it seems also obvious even before this question was asked here that most of the people of this country would agree. So let us now start to debate what should be in the next budget before the budget is set which is usually the case within media i.e. the budget is debated – after the fact – just one week before it is published. With respect, there have been some signs of justification (gombeenism of sorts) for do gooder tax exiles types; we must tax our… Read more »
Here is a header for DMW ‘How close are we to societal breakdown?’
Tax concessions are a national thing, a country trying to get a competitive edge. another is to reduce the value of currency relative to your trade competitor and we see the current competitive devaluation of currencies world wide in a beggar thy neighbor frenzy. This results in QE to the nth. Now we have the Trans Pacific Partnership being foisted on us by transnational corporations. These corporations will sue governments, read taxpayers, for any legislation that impedes profits. This will allow such as Monsanto to trade their death chemicals in the form of a benefit to humanity. Here we have… Read more »
Pope Francis Calls for Ending Tyranny of An Economy Which “Kills” “A financial reform open to such ethical considerations would require a vigorous change of approach on the part of political leaders. I urge them to face this challenge with determination and an eye to the future… Money must serve, not rule!” In his Apostolic Exhortation Evangelii Gaudium, Pope Francis calls upon financial experts and political leaders from around the world to bring about a financial reform which defends the common good, and replaces the tyranny of a “survival of the fittest [economy], where the powerful feed upon the powerless,”… Read more »
Have a butcher’s and a read of this lads:
http://hiredknaves.wordpress.com/2013/11/27/the-idiots-of-rte/
Great blog, I have retweeted it. Should be required reading for everyone at that pampered den of property porn RTE. They are disconnected from reality and the common person. @bryansixone – Brian Dobon’s behaviour was a disgrace and @davidmurphyRTE – David Murphy just as bad for suggesting that it is almost time to get the champagne out for rising property prices – have they learned nothing? History set to repeat itself it seems.
RIP OFF REPUBLIC.
Thanks for the reference Adam. It looks like they want to get the merry-go-round up and running before the next round of elections and have some sort of feel good factor in place. It really is pravda on the liffey. Next we’ll be hearing Eddie Hobbs trying to flog apartments in Cape Verde again (just remember a return flight from Cork to Cape Verde costs 3300 Euros Eddie). An electorate with short memories and politicians with hard necks and who knows who’ll get elected next time out. It’s not a republic it’s a kleptocracy as Max Keiser pointed out to… Read 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 tended in our hospitals like everyone else. 1. They pay for roads and utilities “like everyone else” 2. Their kids should pay tuition (or rather, their parents) 3. This has nothing to do with companies where these people (their kids’ parents) work. These companies could operate anywhere else. Their being in Ireland doesn’t somehow “increase” amount of tax that taxpayers have to… Read more »