Will the G8/Tax Law Changes screw the 26's Competitive Corp Tax Advantage?

[Hound]

There is Irish tax avoidance with this tax avoidance scheme. The corporation tax is paid in Ireland by the corporations who are registered as domiciled in Ireland, after the royalties are deducted from the profits. It's even commonly known as the 'Double Irish'.

Yip, the so called double Irish is something I am very familiar with - but there is absolutely no Irish tax avoidance here.

Royalties are proper business expenses. They have to be paid. You have to pay for IP you use that belongs to some other entity. The fact that companies have moved their non-US IP out of the US is absolutely nothing to do with Ireland. The movement of this IP was 100% legal and subject to tax in the US.

There is certainly a bit of a gimmick going on by companies whereby they sometimes use Irish incorporated companies that are tax resident outside Ireland (e.g in a haven). Ireland has no right to tax companies which are not resident here or have no Irish operations here, as would be the case with those companies.

The MNCs use such companies so they don't have to publish in their accounts that they have entities in Bermuda, Cayman, etc, because they are afraid that might look bad. Its sneaky, no doubt about that. But its absolutely not tax avoidance and its not a secret to either the IRS or the Irish Revenue.

A bit of a gimmick!!!
If this is not regarded as a tax avoidance scheme by you, then what is?  Just because the scheme is legal doesn't mean it's not a tax avoidance scheme.
It fulfils every criteria to be called a tax avoidance scheme. Experts on tax avoidance schemes all around the world are calling this, a tax avoidance scheme.

"Experts" my arse.

You stated there is "Irish tax avoidance". There is no Irish tax avoidance in such plans. Ireland is completely transparent in how profits and calculated in accordance with internationally agreed concepts and taxed at our statutory trading rate of 12.5%.

Tax planning MNCs do in the US or in offshore havens is nothing do with Ireland, yet Ireland gets all the negative publicity courtesy of these "experts".

[screenexile]

The Irish Government need to be very careful. They've fcuked up with Pfizer and could very well piss off more of the big Pharma companies that pay probably more Corporation Tax than the technology firms.

[Declan]

Interesting article from Michael Taft on it

MAY 27, 2013 - Michael Taft

Tax Haven Dictionary

Haven  / ha-ven:  (n) a place of safety or sanctuary; shelter.  [Old English hæfen, from Old Norse höfn; related to Middle Dutch havene, Old Irish cuan to bend].  Example:  'Ireland is a safe haven from (insert:  e.g. dragons, personal ownership of semi-automatic rifles, taxation on corporate profits)'.

The level of self-delusion over Irish corporate tax rates is scaling the heights of the fantasy world we constructed for ourselves during the property boom.  'There is nothing wrong with our tax code', 'we are playing by the rules', 'its' the fault of other countries','everything in our cocoon is fine – don't bother us'.

To the question –is Ireland a tax haven – we get a torrent of answers:  some defiant ('we are not, nor have we ever been, a tax haven'); some convinced ('are we a tax haven?  Of course, we are; what planet are you living on'); and some more nuanced ('we have many of the attributes of a tax haven').

Personally, I'm not terribly interested in the labels.  What's important is what is actually happening.  Let's look at a table produced by Dr. Jim Stewart of TCD, based on a US Government report.  This research into the tax paid by US multi-nationals in various countries found the following:


As seen, Bermuda is a league-leader in providing the most secure 'haven' from corporate tax liability followed by Luxembourg and the UK Caribbean Islands. Next up is Switzerland, the Netherlands and, ahem, Ireland.  A long way off is Germany, France and the UK.

There is the argument that it's not Ireland's fault, it's the fault of US tax law.  Ok, for those who don't have a grasp (and don't pretend to have one) on the complex world of international corporate tax accountancy – and I'm one of them – we can make two observations:

Either those US companies operating in Germany, France and the UK are either ignorant of the ability to reduce their tax liabilities, or
There is something in the tax law of Bermuda, Ireland, etc. that allows US companies to drive down their tax liabilities – something that is missing in the tax laws of, say, Germany and France.
Which is the more reasonable I leave to you.

And, my, some are getting downright self-righteousness.  Take the example of France.  How dare the French authorities attack us when their effective corporate tax rate is so low?  The oft-quoted figure for France's effective tax rate is 8 percent – compared to Ireland's 11.9 percent.  However, this is incorrect – by a country mile.  This claim is based on a PricewaterhouseCooper and International Finance Corporation study.  Here is what Jim Stewart wrote about that report:

' . . . the PWC/IFC data cannot be relied on to estimate effective tax rates because it is based, not on real data, but on a "standard firm with 60 employees", a standard size (102 times income per capita) and a fixed gross profit margin of 20% (p. 13). Existing nominal tax rates are then applied in estimating tax paid. This means that estimated tax rates apply to small companies employing less than 50 and with capital employed of under €3 million. Interpreting such results can be difficult given that many countries have low tax rates for small firms, for example 15% in France. A new incorporated entity in Ireland is exempt from corporation tax for the first three years.'

So the claim that France has a lower effective tax rate is not based on data but on a standard model firm which enjoys a low rate of tax for small companies in France (a feature of many other countries).  Can we get a broad estimate of effective tax rates in other countries?  Yes, by showing the amount of corporate tax paid as a proportion of net profits (operating surplus minus investment).  This is a ball-park figure but Seamus Coffey shows similar results.



This is an economic measurement, not a company account by account compliation.  The actural effective rate is likely to be slightly lower in all cases.  But it shows French companies paying nearly four times more than companies in Ireland.  In fact, every country pays a higher rate than Ireland.  Ireland is a low corporate tax regime.

Another interesting insight is the multi-national profit per employee in the EU-15 states.  The following is taken from Eurostat for 2010 (for Denmark, Spain, Luxembourg, Portugal and the UK the figures are for 2009) and it excludes financial institutions. Further, it refers to gross operating surplus - that is, before investment in tangible goods.





These kinds of stats surely do help the Irish Government to woo foreign investment – ultra- low tax rates and ultra-high profit levels.  No wonder that some multi-nationals refer to us as 'Treasure Ireland'.

Now put that all together with the facilities that Ireland offers to multi-nationals in terms of using the country as a transit point in an international chain of tax avoidance – and you have a real package.  And it is our package – the story in the Sunday Business Post yesterday suggesting that Ireland may abolish the 'double Irish' tax vehicle shows that it's not all the fault of other countries.

Unfortunately, the debate is focused on tensions between Ireland and the US, France, Germany, Britain, etc.  What is not appreciated is the damage that Ireland's tax regime is doing to developing countries.  As Dr. Sheila Killian of NUI Limerick states:

'A wider problem is that it's not just the US that is losing tax . . . the loss in relative terms to countries in the global south is even greater. A recent Action Aid report details the case of a Zambian sugar company routing interest and dividend payments through Ireland and the Netherlands in order to avoid tax in Zambia; this in a country where 45% of children are undernourished, and 90% of rural dwellers live in poverty. Lives are, quite literally, at stake here.'

Lives at stake – that puts Ireland's corporate tax regime into some perspective.

So is Ireland a tax haven?  What does it matter what we call it.  Some use the term semi-tax haven, to acknowledge that foreign companies here engage in real economic activity (in Bermuda all you need is a postal address).  Others such as Richard Murphy of Tax Research UK refer to us as a conduit-tax haven – pointing out our helpful role in the international chain of tax avoidance.  Tax sanctuary, tax refuge, tax harbour, funny tax place – put whatever name you want on the tin.

But when it comes to the final tax bill we are a lot closer to Bermuda than Germany.

If only we had their weather.

[Hound]

But Declan, Taft is using figures there that are just incorrect.

He tries to explain how one set of stats showing Ireland has an effective rate of 11.9% compared to France's 8% can't be relied on (although I'm not sure his explanation makes much sense), but doesn't offer any explanation where the Ireland 5% and 8% effective rates come from in the other tables he produced. The fact of the matter those tables include profits from companies that are not tax resident in Ireland - so they're nonsense!

Its like taking two Irish born big wigs earning €1M per year each. One of them lives here and pays tax of €400,000, but the other is resident in Malta or somewhere and pays no Irish tax. Combined their effective Irish tax rate is 20%. Which is completely meaningless, as are the tables produced by Taft.

It looks like Ireland might try and stop the practice of moving Irish born companies into haven countries. Optically it looks bad from our point of view. Absent any other US tax changes the MNCs can just use pure haven companies to house their IP instead with the exact same results, but it would at least stop the "experts" blaming Ireland as the reason MNCs use havens and suddenly our effective tax rates per those types of tables would jump up to about 12.5% (even though we wouldnt be collecting one extra cent in tax).

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

Here is the Sunday Business Post article mentioned by Taft:
http://www.businesspost.ie/#!story/Home/News/COLUMN%3A+The+real+Irish+tax+facts/id/89127228-1885-1a30-f4f7-45d479629925

Standing up to defend Ireland's tax regime and the business models of multinationals may appear, at first blush, to be on a par with being a biblical era PR spokesperson for King Herod. However, in the hysteria of finger pointing at some of the world's biggest brands, "double Irish" structures and so called tax "deals", it is getting harder to separate the fact from the fable about the current tax landscape. But the facts do need to be pointed out.

It starts with the US system. At 35 per cent, the US has the highest corporate tax rate in the developed world, and that is before state and local taxes are included. The US tax system effectively encourages US companies to export jobs, investment and intellectual property and discourages the repatriation of foreign profits to the US.

For some time now, the US has appeared to be on the cusp of reforming the corporate tax code with proposals from Congressman Camp and Senator Max Baucus among others, but today that reform looks as far away as ever.

Amid all the current and previous Senate hearings not one US politician has pointed out the inescapable truth - the US could easily fix the primary concern they have identified of US companies generating low-taxed foreign profits and not repatriating them. All it takes is a change to the US tax code which would subject zero or low-taxed foreign profits to US tax, even if they were not repatriated. End of debate.

It's a problem in part of 21st-century business models meeting early 20th century tax principles. The broad principles governing international trade and tax were developed over the first half of the 20th century.

The idea of doing business in another country and concluding sales without having a "permanent establishment" or "taxable presence" in that county just wasn't possible.

However, in the era of e-commerce it is possible for companies to achieve global reach very early in their lifecycle and to do business without creating a tax presence in those countries.

How many of us have downloaded a song, bought a digital (or physical) book or any other digital or physical product without ever interacting with anyone in Ireland, or without our supplier having any sales presence in Ireland?

In such circumstances, global tax principles are very clear that there are no profits in Ireland on which to pay tax - in the very same way that if you had ordered a product 30 years ago by mail order from outside Ireland there would have been no profits here on which to pay tax.

The same principles apply in almost every developed country - the profits lie where the activities, functions, risks and assets are located and that profit must be commensurate with those activities.

This is an accepted global concept, and underpins the concept of transfer pricing around the world. Some commentators don't like the tax answer that these principles now give in the 21st-century economy.

They would like the location of sales or customers to also be a determining factor, thus favouring the big nations to the disadvantage of the smaller ones. I would disagree but recognise it is an acceptable viewpoint to put forward. This is one for the lawmakers, and the OECD are working on an action plan which is expected to emerge this summer.

Some politicians, who should know better, complain that the rules give results they don't like and that companies should apply a morality test on top of this.

Tax is one area of business where companies want as much certainty as possible. Note to the Public Accounts Committee in Westminster - listen to those people who are telling you that if you don't like the rules, then change them. They are right.

But there is an optical problem for Ireland. Broadly speaking, the Irish tax rules do not automatically make a company tax resident here and liable to tax merely by virtue of being incorporated here.

This came under the spotlight in particular at the US Senate hearings, with reference being made to "stateless" companies which have large tax- free income flows and are not tax resident anywhere by virtue of falling between different rules in different jurisdictions.

This concept facilitates the "double Irish" structure which allows multinationals to legitimately pay for the use of intellectual property, but in doing so allow that income to be accumulated tax free in an offshore vehicle.

The fact that this is an Irish incorporated vehicle - although one that is not within the ambit of the Irish tax system - has caused Ireland significant reputational damage in recent weeks.

In the current global tax environment "when you're explaining, you're losing" and it is clear that the days of the "double Irish" are now numbered.

If Ireland effectively eliminates the "double Irish" concept, it is not going to address the global issue of offshore profits. Some multinationals will bring their IP onshore to Ireland or elsewhere, but many others will move it to entities incorporated elsewhere to achieve the same result. However, to paraphrase Richard Nixon, "you won't have Ireland to kick around any more", and this does seem to be uppermost in the minds of tax policymakers in Ireland right now.

It shouldn't obscure the fact that our overall tax offering is robust and sustainable. The "double Irish" obscures the fact that everything else about our tax regime is quite mainstream.

We have low, but not nominal, tax; 69 tax treaties through which we exchange information with other territories; a transparent tax system; Ireland requires substantial activities to qualify for the 12.5 per cent rate - so the OECD definition of a tax haven is failed on all counts.

We have a world-class R&D tax credit regime, robust withholding tax and double tax regimes and a sensible transfer pricing system.

Ireland operates full OECD tax principles and is entitled to tax only profits derived from what is actually done here. In other words, these are all facets of our system that are positive, progressive and which underpin the massive success we've had in attracting substantive foreign direct investment to these shores.

The tax landscape is changing and more and more companies are being driven to align their profits with their substantive activities and to avoid the use of tax havens. All good news for Ireland, notwithstanding the current "noise". Full credit to the Taoiseach, Tánaiste and Minister for Finance for standing up to a fair bit of ill-informed foreign political posturing about Ireland's tax status.

[Main Street]

There is Irish tax avoidance with this tax avoidance scheme. The corporation tax is paid in Ireland by the corporations who are registered as domiciled in Ireland, after the royalties are deducted from the profits. It's even commonly known as the 'Double Irish'.

Yip, the so called double Irish is something I am very familiar with - but there is absolutely no Irish tax avoidance here.

Royalties are proper business expenses. They have to be paid. You have to pay for IP you use that belongs to some other entity. The fact that companies have moved their non-US IP out of the US is absolutely nothing to do with Ireland. The movement of this IP was 100% legal and subject to tax in the US.

There is certainly a bit of a gimmick going on by companies whereby they sometimes use Irish incorporated companies that are tax resident outside Ireland (e.g in a haven). Ireland has no right to tax companies which are not resident here or have no Irish operations here, as would be the case with those companies.

The MNCs use such companies so they don't have to publish in their accounts that they have entities in Bermuda, Cayman, etc, because they are afraid that might look bad. Its sneaky, no doubt about that. But its absolutely not tax avoidance and its not a secret to either the IRS or the Irish Revenue.

A bit of a gimmick!!!
If this is not regarded as a tax avoidance scheme by you, then what is?  Just because the scheme is legal doesn't mean it's not a tax avoidance scheme.
It fulfils every criteria to be called a tax avoidance scheme. Experts on tax avoidance schemes all around the world are calling this, a tax avoidance scheme.

"Experts" my arse.

You stated there is "Irish tax avoidance". There is no Irish tax avoidance in such plans. Ireland is completely transparent in how profits and calculated in accordance with internationally agreed concepts and taxed at our statutory trading rate of 12.5%.

Tax planning MNCs do in the US or in offshore havens is nothing do with Ireland, yet Ireland gets all the negative publicity courtesy of these "experts".

Quite frankly Hound, your derision here, is arrogance without intelligent comment.
Please explain why an expert is wrong to claim that this scheme is a tax avoidance scheme. What is the definition of a tax avoidance scheme that satisfies you?

You stated there is "Irish tax avoidance". There is no Irish tax avoidance in such plans. Ireland is completely transparent in how profits and calculated in accordance with internationally agreed concepts and taxed at our statutory trading rate of 12.5%.

Just because a scheme is not illegal and complies with the law, does not mean it's not a tax avoidance scheme.
When a corporation registered in Ireland, operates a tax avoidance scheme in such a manner and through it manages to reduce the amount of tax due on profits, to the Irish exchequer, then it's an Irish tax avoidance scheme. The tax is being avoided in Ireland.
Just because the actual act of avoidance takes place in an offshore Island, does not take the Irish out of the equation.

[Hound]

Main Street, I don't know whether you're simply ignoring what I said or just missing the point?

There is no Irish tax being avoided. That has been set out above. The Sunday Business Post article quoted in my previous post is written by a genuine Irish tax expert, and there is nothing in that I could disagree with.

You've been shouting out Irish tax avoidance, because you believe what foreign politicians or UK commentators are saying, both with their own agenda, but you haven't explained where the Irish tax avoidance is?

[Canalman]

No surprises here. Capitalism at its purest.

A competitor (Ireland plc) is on its knees and vulnerable. The vultures smell blood and pounce.

You won't see the other "tax havens" subject to this as imho anyway they are strong enough to defend themselves or control their own affairs. We obviously are not.

Trouble ahead big time.

[Declan]

The debate continues - Stiglitz asks the question

Why should taxpayers in Germany help bail out citizens in a country whose business model was based on tax avoidance and a race to the bottom – and why should citizens in any country allow their companies to take advantage of these predatory countries?

http://www.guardian.co.uk/commentisfree/2013/may/27/globalisation-is-about-taxes-too

[muppet]

The debate continues - Stiglitz asks the question

Why should taxpayers in Germany help bail out citizens in a country whose business model was based on tax avoidance and a race to the bottom – and why should citizens in any country allow their companies to take advantage of these predatory countries?

http://www.guardian.co.uk/commentisfree/2013/may/27/globalisation-is-about-taxes-too

That is an idiotic question.

If we didn't get the Troika loans we would have defaulted on the bank debt. And where would that have left the German taxpayer?

The bailout was a much better deal for them.