Daragh McCarthy and Aoife Ní Lochlainn: In the wake of the Public Accounts Committee in the UK interrogating a trio of multinational executives on the meagre sums of corporate tax paid by many trans-national companies, last Saturday’s episode of the Business on RTE featured a segment on the topic that closed with Feargal O’Rourke of PwC saying that he expected to see these companies pay “a fairer rate of tax” in the coming years. It appears that the pressure for reform is building.
The issue has garnered a significant amount of media attention over the past couple of months—from the storming of Google’s offices in Paris to the naming and shaming of Facebook, Starbucks and Apple in the UK press. Senior government officials in many EU countries are openly voicing their discontent with the increasingly aggressive tax dodging strategies employed by these corporations, and the European Commission is scheduled to discuss the international tax practices of multinational businesses on December 5th. It remains to be seen if this is simply bluster, or if there is a genuine will to devise a coordinated pan-national strategy to reduce tax avoidance.
A recent report by TASC, Tax Injustice: Following the Tax Trail highlighted how the Irish tax system is a key component of a subsidiary-based structure that drastically reduces the overall tax bill of transnational businesses. A friendly tax environment has been a central part of the effort to lure multinational corporations to Ireland. FDI of this nature has been at the core of successive governments’ industrial policy for over half a century, and this policy is generally regarded to have been successful.
Accommodating these companies has come at a substantial cost, however. Contributors to this site have noted the obsessive focus on FDI is likely to have hindered the development of indigenous firms. The contribution made by multinationals to the Irish exchequer has diminished considerably in recent years; currently it is down 2.5 per cent year-on-year. The recent spike in media attention heightens the risk of damage to the state’s reputation. This summer, the US Senate’s Permanent Subcommittee on Investigations sought to establish Ireland’s role in “tax practices that range from egregious to dubious validity.”
However, while much of the media focus of the past few weeks has been on the use of tax loopholes to decrease tax bills in European countries, it remains the case that these countries are still better equipped to address the consequences of such corporate behaviour than countries in the Global South. Tax avoidance by companies and individuals hampers the capacity of these states to develop their economies and pay for much needed public service.
According to Christian Aid, between 2005 and 2007, six Irish Aid programme countries lost nearly €82 million in tax revenue to EU or US – almost 17 per cent of total Irish Aid budget for the countries concerned. A recent report by the Tax Justice Network (TJN) claimed that since the 1970s, 139 low-to-middle income countries have lost a total of $7.3 to $9.3 trillion to tax dodging by the super rich. This vast sum is more than enough to cover the debts of these countries, whose aggregate gross external debts stood at $4.08 trillion in 2010.
The TASC report contains a number of recommendations for tackling tax injustice, including the introduction of country-by-country reporting. However, while increased transparency would help countries better understand the methods of tax avoidance, it will not in and of itself solve the problem and is unlikely to appease many of Ireland’s critics.
Dr Aoife Ní Lochlainn
Aoife Ni Lochlainn was a policy analyst with TASC. She holds a doctorate in economic history from the European University Institute in Florence.
Daragh McCarthy is responsible for events, web content, and the day-to-day office tasks at Nevin Economic Research Institute. He combines these roles with research and articles on the Irish labour market, housing, public services and the health system.
He worked as a researcher for three years in a policy development organisation in Ireland that covered local and European issues. His work helped match the requirements of credible research with the demands of communicating that work to different target audiences.