Is Ireland a Tax Haven?

An analysis of the facts

James Stewart05/04/2019

For several years various government ministers have stated ‘Ireland is not a Tax Haven’ and  the ‘Double - Irish has ended’.  Both of these statements are subject to dispute.

A recent report from the European Parliament (2019, par. 330) identifies Ireland and four other member states Cyprus,Luxembourg, Malta and the Netherlands as tax havens and  “calls on the Commission to currently regard at least these five Member States as EU tax havens until substantial tax reforms are implemented (par. 330). This  has resulted in extensive comment, for example in the Irish Times and Irish Independent.

Many findings in the Report have been publshed previously. Some tax haven features of the Irish economy, for example the distorting effects of ‘profit switching transfer pricing’, have been pointed out many years ago. The European Parliament Report (par 330) cites  the European  Commission as stating that Belgium, Cyprus, Hungary, Ireland, Luxembourg, Malta and the Netherlands have features of their tax ststems  that “facilitate aggressive tax planning”. The Report  also cites an Oxfam Report that identifies five EU countries as corporate tax havens (Cyprus, Ireland, Luxembourg, Malta and the Netherlands).A previous 2016 Oxfam study covering similar ground was described by former Minsister for Finance Michael Noonan “asso wide of what the actual factual position is that nobody will take them seriously”.

The Report has other direct and indirect criticisms of Irelands (and other countries) tax regime.  For example par. (8):-

 “Deplores the fact that some Member States confiscate the tax base of other Member States by attracting profits generated elsewhere, thereby allowing companies to artificially lower their tax base” and also states

 “that this practice not only harms the principle of EU solidarity, but also gives rise to a redistribution of wealth towards MNEs and their shareholders at the expense of EU citizens; gives rise to a redistribution of wealth towards MNEs and their shareholders at the expense of EU citizens”.

The Report  notes (Par. 134):-

That the high level of inward and outward FDI as a percentage of GDP in Ireland and some other countriescan only be partly  “be explained by real economic activities”;

That  several countries including Ireland, have failed to transpose Anti-Money Laundering Directives (AMLD) into national law  and for this reason Ireland has been referred to the European Union Court of Justice (Par. 223).

The Report’s conclusion has led to rebuttals that Ireland is not a tax haven. Brian Hayes (MEP) on Morning Ireland March 27th 2019, explained the conclusions of the Report by stating “that there was a lot of jealousy about Ireland’s success, and stated that many loopholes such as the ‘Double Irish had ended’.

The claim about the ending of the Double Irish’has also been made  by others for example the Taoiseach is quoted as stating at Davos this year, that the “Republic’s record corporate tax haul last year was partly down to Ireland having “closed down things like the Double Irish” tax-avoidance strategy.

In fact, as has been reported, Google reported untaxed profits of $14.9 billion for 2017 using a double Irish structure with Bermuda. This is an increase of $5 billion compared with 2016. Abbott Products, Abbvie and Adobe Software Trading comany and others which use a ‘double Irish’  tax strategy, also reported an increase in profits in 2017  compared with 2016. However other firms that use a ‘double Irish’ tax strategy have reported reduced profits. This reduction has been associated with corporate restructuring. For example Symantec transferred its residence from the Cayman Island to Ireland in Janury 2018. Overall for identified firms, profits using a ‘double Irish tax strategy amounted to €27.3 billion in 2017 and €44.9 billion in 2016, a fall of €17 billion. 

Further information on ‘double Irish’ tax strategies has emerged because some firms though unlimited have recently published accounts. One example is the parent of the main operating subsidiary  of Google Ireland, that is Google Ireland Holdings Unlimited company which is tax resident in Bermuda.  Unlimited companies were required to file accounts with  Copanies Registration Office under the the Companies Accounting Act 2017.

However some key firms have not published accounts for their subsidiary using a ‘double Irish’ tax strategy. One example is the parent of the main Facebook operating subsidiary in Ireland, that is Facebook Ireland Holdings unlimited company, which is tax resident in the Cayman Islands. Hence it is difficult to state with certainty that there has been a fall in profits from the use of the ‘double Irish’ tax strategy.  What is certain is that the Double Irish remains a very valuable tax minimisation strategy and this is likey to continue until its eventual ending in 2020.

There are other features of the tax tax regime consistent with ‘tax haven’ status not mentioned in the European Parliament Report.  For example, extremely generous allowances on the depreciation of aircraft, coupled with a particularly tax favored financing (referred to as ‘section 110’ loans) means that 50% of the worlds commercial aircarft are leased from Ireland.  The growth of ‘Section ‘110 firms’, have also  resulted, in Ireland accounting for around 20% of total assets of firms engaged in financial transactions known as securitization (‘Financial Vehicle Corporations’) operating within the eurozone.

The tax concession relating to the acquisition and financing of Intellectual Property  (I.P.)  has been used by Apple and other firms as a replacement for  a ‘stateless income’ and ‘double Irish tax strategy. Capital allowances claimed om intangible assets amounted  amounted to Eur 35.7billion in 2016 (see Table 20).

 

There is no doubt other tax minimisation strategies are in place or planned.

Other factors connected with changes to corporate law are also important, for example, ease of incorporationand establishing a holding company, and most important a flexible response by State agencies to the needs of FDI, including  relatively light touch regulation. In conclusion contrary to claims that the ‘double Irish has ended there is substantial evidence that it remains a continuing and valuable tax strategy.

 

 

 

Posted in: EconomicsTaxation

Prof James Stewart

James Stewart

Dr James Stewart is Adjunct Associate Professor at Trinity College Dublin. His research interests include Corporate Finance and Taxation, Pension Funds and financial products, Financial Systems and Economic Development.

He is widely published and his titles include Mutuals and Alternative Banking: A Solution to the Financial and Economic Crisis in Ireland (2013), Choosing Your Future: How to Reform Ireland's Pension System (co-author, 2007) and For Richer, For Poorer: An Investigation of the Irish pension system (2005).


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