Corporations continue to shift billions in profit to and through Ireland to avoid tax

Tax loopholes cost Irish taxpayer hundreds of millions each year – new Oxfam Ireland report

Tuesday February 28th, 2017

Government measures aimed at tackling tax avoidance are falling short as tens of billions of euro of corporate profits continue to be shifted to and through Ireland each year to avail of Ireland’s lax tax system, a new report by Oxfam Ireland shows.

Launched today, Mantras and Myths: A True Picture of the Corporate Tax System in Ireland, says Ireland’s extensive network of legal double taxation agreements could allow companies to continue to route profits to low tax jurisdictions beyond the 2020 end date of the ‘Double Irish’ loophole. A corporation can simply establish an Irish-registered company which is tax resident in a country with which Ireland has a double tax arrangement, such as Qatar or Panama.

The report highlights the potential negative impact of Ireland’s corporate tax system on developing countries and how its lack of full transparency leaves them and the Irish public in the dark about where companies make their profits and pay tax. Despite recent changes to Ireland’s double taxation treaties with developing countries, most contain no anti-abuse provisions aimed at preventing tax avoidance. The UN, World Bank, IMF and OECD recommend that all such treaties with developing countries should include anti-abuse provisions.

Oxfam Ireland Chief Executive Jim Clarken said: “Corporate tax dodging is not a victimless crime. Not only does Ireland harm its own reputation by allowing such practices, but profits that flow through Ireland without being taxed here should have been taxed elsewhere.

“The European Commission’s Apple ruling provided a rare glimpse into a secretive world. It showed that Apple routed two-thirds of its profits on global sales, including in Africa, through Ireland, resulting in no tax accruing to relevant developing countries. Africa has a bigger mobile phone market than the US and will shortly surpass Europe but African tax revenues are not benefiting from this boom.

“Globally, an estimated $100 billion is lost to developing countries every year because of corporate tax avoidance schemes. This denies the world’s poorest places the additional resources that would make a huge difference by providing the schools, hospitals and infrastructure that lift people out of poverty.”

Elsewhere, the report estimates that incentives and tax relief for the aircraft leasing industry cost the Irish taxpayer approximately €577m in foregone corporate taxes every year. It also references a 2016 study by Oxfam and other NGOs which found that French banks reported €272 million in profit in Ireland – completely out of proportion to their reported turnover and number of employees in Ireland. For example, for the same turnover, Société Générale recorded profits in Ireland which were proportionately 18 times higher than in other countries and 76 times higher than in France.

The report acknowledges the reforms made by the Irish Government to date, including through the OECD Base Erosion and Profit Shifting (BEPS) process and others at EU level to address tax avoidance. However, Oxfam says it has serious concerns about whether the existing processes Ireland is engaged in go far enough and warns that BEPS will ultimately fall short in its efforts to tackle the global nature of corporate tax avoidance because of its limited scope and membership and its exclusion of developing countries from the start of the process.

Mr. Clarken said: “We need to have an honest discussion about corporate tax avoidance in Ireland and be prepared to admit that while we’ve made a good start, there is still a secretive network of loopholes to be exposed and removed if harmful. Despite some improvements, reporting requirements for multinational corporations’ tax activities are still opaque.

“We believe that ensuring Ireland’s prosperity and making our tax system fair and transparent isn’t mutually exclusive. The Irish Government has repeatedly said there should be no conflict between growing your economy and doing what is right. Ultimately, corporate tax dodging will be ended by a concerted global effort and we believe Ireland can play a positive role in ensuring this reform happens,” he added.

“Changing geo-political conditions mean Ireland must fully engage at an international level to stem the negative effects of corporate tax avoidance. This report sets out the practical solutions, from strengthening tax rules that remain open to abuse to supporting the establishment of an international tax body. Otherwise, citizens here in Ireland and in developing countries will pay the price.”

Among the report’s recommendations, Oxfam Ireland is calling on the Government to do the following:

·         Support efforts at the EU to agree meaningful legislation to ensure that multinationals publically report on a country by country basis where they make their profits and pay their taxes

·         Tackle profit-shifting by revising Ireland’s weak transfer pricing (the way in which the transfer of goods and services between subsidiaries of the same group of companies are accounted for) legislation and give Irish revenue officials the authority to investigate instances where profit-shifting may be used as a tax avoidance strategy

·         Re-examine Ireland’s network of double taxation agreements to ensure that companies cannot avail of tax structures similar to the ‘Double Irish’ post-2020.

·         Legislate in the next Budget for strong Controlled Foreign Company Rules to discourage profit shifting to tax havens outside the EU as agreed to under the EU Anti-Tax Avoidance Directive

·         Commission a new spillover analysis to improve understanding of financial flows between Ireland and developing countries via third countries using data that will become available to Ireland through exchange of information protocols agreed as part of the BEPS process

·         Support the formation of a global tax body to ensure an international tax system which considers the interests of developed and developing countries equally. 

Oxfam Ireland will host a panel discussion: ‘Corporate tax reform: Has Ireland done enough?’ tonight which will include contributions by tax activists from Kenya and Nigeria. The event takes place at the Dublin’s Royal Irish Academy at 6pm. 

To read the full report, click here: https://www.oxfamireland.org/sites/default/files/upload/pdfs/mantras-myths-final.pdf

To read the summary, click here: https://www.oxfamireland.org/sites/default/files/upload/pdfs/mantras-myths-summary.pdf

For information about tonight’s event and speakers, see https://www.facebook.com/events/2218493718376656/

ENDS

Contact: Sorcha Nic Mhathúna, Oxfam Ireland, +353 83 1975 107, sorcha.nicmhathuna@oxfamireland.org

Notes to Editor:

The report and event are part of Oxfam Ireland’s Make Tax Fair campaign. This project is funded by the European Union.

Double taxation agreements: Double taxation agreements are legal arrangements between jurisdictions to determine the taxing of cross-border activities.

Profit-shifting in Ireland: Oxfam’s ‘Tax Battles’ report in December 2016 found the level of excess profits (profits over and above what one might normally expect based on real economic activity) reported in Ireland to be in the tens of billions, while a 2015 research report published by the International Centre for Tax and Development estimated that excess profits in Ireland could be as high as $93 billion.

https://www.oxfam.org/en/research/tax-battles-dangerous-global-race-bottom-corporate-tax

Corporate tax dodging and developing countries: The UN has estimated that developing countries lose around $100bn annually as a result of corporate tax avoidance schemes. http://unctad.org/en/PublicationsLibrary/wir2015_en.pdf

Oxfam calculates that this is enough to pay for the education for all of the 124 million children currently out of school, and to pay for health interventions that could save the lives of four million children. The total annual financing gap to achieve universal pre-primary, primary and secondary is $39 billion each year, while the number of children out of school is 124 million (59 million young children, 65 million adolescents) according to UNESCO. http://unesdoc.unesco.org/images/0024/002457/245745e.pdf

http://www.uis.unesco.org/Education/Pages/oosc-data-release-2015.aspx

$32bn would fund the key healthcare to save the lives of six million children across the world each year. http://www.thelancet.com/pdfs/journals/lancet/PIIS0140-6736(13)62231-X.pdf

Calculation on Ireland’s aircraft leasing industry: In answer to a Parliamentary Question, Minister for Finance Michael Noonan revealed that in 2014 the Irish aircraft leasing business as a whole paid less than €23 million in corporate tax. According to the IDA, the aircraft leasing industry manages more than €100 billion in assets. While we do not have profit figures, industry observers suggest that return on investment in aircraft leasing can be between 3 and 15 percent. If we suppose, for example, a 5 percent return on those assets, then profits would be in the region of €5 billion, which, taxed at 12.5 percent, would give us €600 million in corporate tax. This would mean that incentives and tax relief for the aircraft leasing industry cost the Irish taxpayer approximately €577m in foregone corporate taxes every year. (See p17-18 of the report for additional detail).

French banks research: A study by Oxfam and other NGOs in 2016 found that French banks reported €272 million in profit in Ireland – completely out of proportion to their reported turnover and number of employees in Ireland. For example, for the same turnover, Société Générale recorded profits in Ireland which were proportionately 18 times higher than in other countries and 76 times higher than in France. This was calculated by comparing two ratios – (i) the amount of profit Société Générale made in Ireland divided by its turnover in Ireland, and (ii) the aggregated profit it makes in other countries divided by the aggregated turnover in these countries. The 2016 report Following the Money: French Banks’ Activities in Tax Havens is available at https://www.oxfam.org/sites/www.oxfam.org/files/following_the_money_final_english.pdf