Irish Corporate Tax: Government begins publicity offensive on tax with irrelevant paper

Irish Corporate Tax 2014: The Government today issued what it calls a technical paper on effective corporation tax rates to effectively confuse the public by avoiding the key issues about its facilitation of corporate tax avoidance. It’s irrelevant to the core issues as it is simply trying to divert attention from them.

Last month a civil servant at the Department of Finance said: “The extremely low effective rate figures that have been quoted recently and attributed to Ireland are based on a flawed premise” because the figures were estimated by dividing the amount of Irish tax paid by a total profit figure that includes substantial profits made by companies that are not tax-resident in Ireland. “Ireland cannot tax profits that are properly attributable to other jurisdictions” – – this is not true. Where do the untaxed profits come from?

The paper that was issued today by the Department of Finance is termed a technical paper [pdf] and Seamus Coffey, University College Cork economics lecturer, was hired to give it some credibility but massive tax avoidance cannot be rationalised or buried by an effort like this.

It’s too late for a publicity campaign and last week Pascal Saint-Amans, the director of the OECD’s tax centre, confirmed in a briefing on April 02, 2014 that “Double Irish Dutch Sandwich” type tax schemes, which involve global revenues of services giants being routed through Ireland and transferred via the Netherlands to Irish offshore companies in Bermuda and the Cayman Islands, will be axed.

The paper gives a ‘tour of the horizon’ on several ways of calculating effective corporate tax rates but the political purpose is to undermine the argument that US firms pay low single digit tax rates.

What is missing from this narrative is that when Google booked 41% of its 2012 global revenues in Ireland; Facebook booked 48% and in 2011/12, Microsoft diverted 24% of its global revenues, the tax due in Ireland was calculated after the booking of big charges to shift most of the profits tax-free to Irish offshore mailbox companies in Bermuda and the Cayman Islands.

The offshore companies are protected from public scrutiny through unlimited status under Irish company law.

In 2012 Google Ireland paid €17m tax on €137m profit – – a 12.4% rate.

However the total Google Inc net income was 22% of revenues, which with Irish reported revenues, the net income from €15.5bn should have been €3.4bn.

The technical paper shows says the most appropriate measures of the effective corporate income tax rate is not the 11.9% in respect of a ceramic flower pot template company used in an international survey and the ‘talking point’ of the Irish Government until recently but rates of 8.4% or 10.4% compared with the headline rate of 12.5%.

The paper says that applying to the total of corporate profits in Ireland are the tax rate as calculated “based on ‘Net Operating Surplus’ from the National Income Accounts which are produced by the Central Statistics Office (Approach No. 3) , and the tax due as a proportion of Taxable Income from the Corporation Tax Distribution Statistics produced by the Revenue Commissioners (Approach No. 5). The most recent figures are 8.4% for the former and 10.4% for the latter, and their averages since 2003 are 10.9% and 10.7 per cent. The two measures are similar in concept but there are notable differences between them.”

The paper adds: “A company resident in Ireland is liable to Corporation Tax on its worldwide profits. Whether or not these profits are brought into Ireland is irrelevant for this purpose. For Irish resident companies with foreign-source profits, double taxation relief is available for corporate income tax paid in other jurisdictions. A company which is not resident in Ireland for tax purposes but which has a taxable presence in Ireland will only be liable for Corporation Tax on its profits sourced in Ireland.”

Interesting it maybe but not relevant to the tax affairs of Irish affiliates of US companies, be they in Ireland or in the West Atlantic.