Inequality

  • The widening gap between the world’s richest and poorest people is tearing societies apart. Too many still toil in extreme poverty. In contrast, wealth is increasingly concentrated in the hands of a few, who can use it to capture disproportionate power to shape the future. The widening gap between the richest and poorest is damaging economies and pushing more people into poverty. There are practical ways to close the gap.

In 2018, 43 people owned the same wealth as half the world – this year, 26 do.

In 2018, 43 people owned the same wealth as half the world – this year, 26 do.

A report released by Oxfam this week highlights that our current global economy is rewarding those at the top - while hundreds of millions of people living in poverty are getting poorer. Last year, the 3.8 billion people who make up the poorest half of the world saw their wealth decline by 11 percent while billionaires’ fortunes rose by almost the same amount. 
 
One of the main drivers of inequality is the failure of governments to clamp down on tax dodging by big businesses and wealthy individuals and ensure everyone is paying their fair share. Tax dodging by corporations and the rich is costing poor countries $170 billion a year. This means less funds for vital public services like healthcare and education, which are key to reducing inequality and helping people to build better lives for themselves. 
 

This just doesn't make sense

 
This human cost of inequality can no longer be ignored. Every day, 262 million children will not go to school and almost 10,000 people will die because they cannot access healthcare.
 
 
Nellie Kumambala, a secondary school teacher from Lumbadzi, Malawi tells us her experience of fighting inequality. “My father inspired my sisters and me to become teachers. I’ve taught at the community secondary school for my area for 19 years. Our children come from very poor families. Many walk long distances to get here. Many come with empty stomachs. We have a problem of too few textbooks, dilapidated classrooms and teaching materials. 
 
"Over the years, I have seen so many girls and boys who score highly despite coming from poor backgrounds. I remember Chimwemwe Gabisa – she was brilliant at mathematics, the best I have taught. She finished secondary school but could not proceed to college for lack of funds." 
 
The private schools in the city, for children from rich families, have very good facilities. It does not seem right that it is so much harder for children in a government school to be educated. I pay tax every month on my little salary. I don’t understand why the people that have everything are failing to pay their taxes. 
 
With more money a lot could be done at our school. We could provide students with breakfast. We could provide them with textbooks and basic necessities like school uniforms and exercise books. At least this would give them a better chance in life.”
 
Rising inequality is preventing us from beating poverty for good – but it doesn’t have to be this way. There is enough wealth in the world to provide everyone with a fair chance in life.
 
Dedicated teachers like Nellie are the lifeblood of great public services that benefit the poorest. Share her story to help fight inequality and beat poverty.
 
 

Billionaires’ wealth grows by €2.2billion/£1.9billion per day as half the world lives on €5/£5 per day

Almost half the world’s population live on less than €5/£5 per day while the wealth of the world’s billionaires increased by €2.2billion/£1.9billion per day in 2018 alone, reveals a new report from Oxfam today. 
 
 
The report – Public Good or Private Wealth? – highlights how the global economy rewards those at the top while people living in poverty get poorer. Last year, the 3.8 billion people who make up the poorest half of the world saw their wealth decline by 11 percent while billionaires’ fortunes rose by almost the same amount (12 percent). 
 
As political and business leaders gather at the World Economic Forum in Davos this week, Oxfam is calling on governments to address this rising inequality by tackling tax avoidance by corporates and wealthy individuals and providing quality, free universal public services that are key to reducing it. 
 
Jim Clarken, Oxfam Ireland Chief Executive, said: “Halving extreme poverty is one of our greatest global achievements over the last 30 years but this is being jeopardised by rising inequality. Our report shows how decades of progress in reducing global poverty has disturbingly slowed – the rate of reduction has halved since 2013 – with extreme poverty actually increasing in sub-Saharan Africa. 
“This is a direct result of inequality – the human cost of which can no longer be ignored – and is largely seen in a lack of access to quality public services. Tomorrow, as the elite convene in Davos, 262 million children will not go to school and almost 10,000 people will die because they cannot access healthcare.
 
“Tax avoidance by big businesses and wealthy individuals is depriving developing countries of US$170billion every year. By eliminating tax avoidance and agreeing a new set of rules to make the global tax system fairer, governments, including the Irish and UK governments, can ensure more money is spent on providing free universal public services that reduce inequality and enable people to thrive – and in many cases survive.”
 
Oxfam calls for the following actions to reduce the growing gap between the richest and the rest: 
 
All governments should deliver universal free healthcare, education and other essential public services 
To achieve this, everyone, including big businesses and wealthy individuals, need to pay their fair share of tax. This means ending tax avoidance and evasion by corporates and the wealthy. Ireland and the UK have an important role to play in this regard and needs to agree a new set of global rules and institutions to fundamentally redesign the tax system to make it fair, with developing countries having an equal seat at the table. These new rules would include increased transparency of multinational corporations (MNCs) tax affairs and implementing effective mechanisms to end profit shifting by MNCs at home and abroad. 
 
Clarken continued: “Unless our leaders at home and across the world act now to reduce inequality, the global goal agreed by world leaders to end extreme poverty by 2030 remains out of reach. But it doesn’t have to be this way – there is enough wealth in the world to provide everyone with a fair chance in life. This means working taps and toilets that don’t spread cholera and deadly disease; clinics with nurses, doctors, equipment and drugs; classrooms with teachers and supplies; a pension at the end of a hard-working life.”
 
 
ENDS
 
CONTACT: Spokespeople are available for interview. For more, please contact: Alice Dawson-Lyons at alice.dawsonlyons@oxfam.org or +353 (0) 83 198 1869
 
Notes to the editor: 
The report, methodology document explaining how Oxfam calculated the figures, and the data set is available on request.
Oxfam’s calculations are based on global wealth distribution data provided by the Credit Suisse Global Wealth Data book published in November 2018, which relate to the period June 2017-June 2018. The wealth of billionaires was calculated using the annual Forbes Billionaires list last published in March 2018. See the methodology for more details.
Every year, Oxfam’s calculations about how many people own the same wealth as half the world are based on data available at the time. Credit Suisse has improved and expanded its data set, which means we can recalculate our figures for previous years. We can now calculate that last year 43 people owned the same as half the world. This year it’s 26. The year before last it was 61. 
The World Bank report Poverty and Shared Prosperity 2018 found that global poverty declined on average 1 percentage point per year between 1990 and 2015, but only 0.6 percentage points per year between 2013 to 2015, and may be further slowing.
The UN estimates that tax avoidance by businesses costs developing countries $100bn a year.
Economist Gabriel Zucman estimates that the world’s poorest regions – Africa, Asia and Latin America – lose $70bn in annual revenue due to wealthy individuals’ use of tax havens.

Public good or private wealth?

Universal health, education and other public services reduce the gap between rich and poor, and between women and men. Fairer taxation of the wealthiest can help pay for them.

Our economy is broken, with hundreds of millions of people living in extreme poverty while huge rewards go to those at the very top.
 
The number of billionaires has doubled since the financial crisis and their fortunes grow by $2.5bn a day, yet the super-rich and corporations are paying lower rates of tax than they have in decades. The human costs – children without teachers, clinics without medicines – are huge. Piecemeal private services punish poor people and privilege elites. Women suffer the most, and are left to fill the gaps in public services with many hours of unpaid care.
 
We need to transform our economies to deliver universal health, education and other public services. To make this possible, the richest people and corporations should pay their fair share of tax. This will drive a dramatic reduction in the gap between rich and poor and between women and men.
 
Downloads (PDF): 
 
About this paper:
Author: Max Lawson, Man-Kwun Chan, Francesca Rhodes, Anam Parvez Butt, Anna Marriott, Ellen Ehmke, Didier Jacobs, Julie Seghers, Jaime Atienza, Rebecca Gowland
Post date: 21 January 2019

Will 2019 be the year when we see real corporate tax reform?

This month the European Union (EU) put the thorny issue of how to fairly tax the digital economy on the long finger. Attempts to reform digital taxation, like efforts to increase public tax transparency and address profit shifting, have stalled at the EU due to opposition from a small number of countries – including Ireland.

Oxfam International’s Executive Director Winnie Byanyima at the World Economic Forum in Davos earlier this year, where she debated Ireland’s Finance Minister Paschal Donohoe on the need for fundamental reform of the global tax system. Photo: World Economic Forum

This month the European Union (EU) put the thorny issue of how to fairly tax the digital economy on the long finger. Attempts to reform digital taxation, like efforts to increase public tax transparency and address profit shifting, have stalled at the EU due to opposition from a small number of countries – including Ireland.

The proposed digital services tax was an imperfect solution. Experts and civil society agree that the real solution lies in fundamentally changing our tax system to meet the challenges of a digitalised economy. This is about more than just a handful of big tech firms dominating the market. Technology is fundamentally changing the way that every industry operates and our tax system must adapt to reflect this.

This is worth considering in the context of developing countries in Africa, where Ireland spends most of its overseas development aid. Africa has often been hailed as a technological leapfrogger, particularly in the realm of mobile banking, where Kenya’s M-PESA is leading the way. Sub-Saharan Africa is now a bigger market for mobile phones than North America and it will shortly surpass Europe. Tech companies based in Ireland like Apple are cashing in on this growing market – in 2015, sales of the iPhone grew by 133 percent in the Middle East and Africa. But African tax revenues are not benefitting from this boom because profits from these sales are routed back to Apple in Cork.

EU’s Tax Haven Blacklist

The EU has had more success in tackling tax havens. Last year, in an assertive move against the ever-increasing power of multinationals and private billionaires, it published its first ever blacklist of tax havens. As a result of this pressure, many notorious tax havens committed to reform their tax laws before the end of 2018, and companies started moving away from tropical zero-tax islands.

However, if the blacklist is to remain an important tool in the fight against tax avoidance, the EU must follow up on its initial action. A preliminary analysis by Oxfam shows that, with just one month left to the deadline, at least 20 countries – including heavyweights like Switzerland – have failed to deliver sufficient reforms and could soon be blacklisted.

It is crucial that EU governments help end the era of tax havens to ensure that the billions of dollars currently hidden from public coffers are spent on services which matter to citizens – health, education, infrastructure and development. The economist Gabriel Zucman estimates that multinational companies shift as much as 40 percent of their global profits to tax havens every year. Not only does this affect governments and citizens across the EU, it also hits developing countries who lose $100 billion annually as a result of tax avoidance- fueling inequality and poverty.

So how successful has the EU’s blacklist actually been? Has it helped or hindered the fight against inequality?

The blacklist started last December with 17 tax havens. Since then, the number has dwindled to a mere five countries, all of which are small island states. However, at the same time, a ‘grey list’ of countries that committed to reform their tax systems by the end of 2018 has grown. It features many of the most disreputable tax havens, such as Bermuda and the Cayman Islands, and has already had some positive results exemplified by the removal of Liechtenstein from the list after it ended its damaging tax practices.

The Tax Haven Shuffle

The blacklisting process has produced changes in the way multinationals are operating. Big companies are beginning to move from tropical islands where they pay no tax, to countries where they pay extremely low tax. As reported in Bloomberg, US multinationals are moving their intellectual property (IP) holdings (patents, trademarks, copyrights etc.) from territories like Bermuda and the Cayman Islands to countries like Ireland and Singapore. This trend is known as “onshoring”, or “the tax haven shuffle”, and it happens when zero-tax islands change their tax regimes in response to external trends – in this case following pressure on tax havens from the EU.

Ireland has incentivised companies to relocate their IP here with reliefs that allow them – in many cases – to reduce their tax liability down to zero percent, replicating what used to happen in Caribbean tax havens. From 1 January 2015 – just after the announcement of the phasing out of the Double Irish arrangement – companies were allowed to offset up to 100 percent of their profits (it was previously capped at 80 percent) against the cost of purchasing IP rights for the relevant period – potentially eliminating any tax bill whatsoever. There has been a sharp uptake in companies availing of this measure, as recognised by the former finance minister Michael Noonan. Deputy Noonan  highlighted “a relocation of intellectual property-related assets or patents to Ireland” as a key reason for Ireland’s massive GDP increase of 26% in 2015. Figures released by Irish revenue authorities show that the use of such allowances for intangible assets went up by a massive 989 percent in 2015. The full extent of these transfers were discussed recently in the Irish parliament where it was disclosed that between 2014 and 2017, intellectual property to the value of approximately €300 billion was onshored to Ireland. The law was changed in 2017 so that companies that transfer IP to Ireland after this date will only be able to claim 80 percent relief against profits in any one year.

In his blog, Chair of the Irish Fiscal Advisory Council, Seamus Coffey, estimates that significantly more intellectual property could be transferred to Ireland. Based on the current figure of €70 billion of royalties leaving Ireland annually, he estimates that up to €1 trillion in IP assets could be transferred to Ireland in the next few years. For companies that moved IP here between 2015 and 2017, Ireland may be, in effect, a “no-tax jurisdiction”, with potentially hundreds of billions of euros of reliefs still to be used against future profits. Meanwhile, companies that move IP to Ireland in the future will be able to avail of reliefs that could potentially allow them to have an effective tax rate of as low as 2.5 percent.

Could we see real reform in 2019?

It is true that coordinated efforts at EU, OECD, G20 and UN level are making it more difficult for individual countries to continue to facilitate corporate tax avoidance. In response, countries are more likely to compete for foreign investment by offering ever more generous tax incentives – Ireland’s intellectual property relief being one example – and reductions in their corporate tax rates. This competition is creating a race to the bottom, whereby a small number of countries may temporarily gain in the short term. In the long term, however, every country risks losing out as extreme competitive pressures negatively impact their sovereign right to raise fair levels of tax.

So even if we are successful at reducing – or eliminating – corporate tax avoidance, there is a danger that this race to the bottom will lead to a situation where corporations start reporting the correct amount of profits in each country, but still pay very little taxes on these profits. This has serious implications for poorer countries’ ability to mobilise sufficient domestic revenue to fund universal public services to tackle inequality and beat poverty, and to fund the social and physical infrastructure that fosters prosperity. As women and girls living in poverty are disproportionally impacted by the under-resourcing of public services, this has also implications for efforts to address gender inequality because developing countries need to be able to raise the vital resources necessary for the advancement of women’s civil, social and economic rights.

Efforts to reform the global tax system move to the OECD in 2019, a move which Ireland supports.  However, this may be a case of “be careful what you wish for” as it seems that a more fundamental reform of the corporate tax system – including the possible introduction of a minimum effective tax rate – may be on the negotiating table at the OECD next year. In a recent interview, Pascal Saint-Amans, director of the OECD’s Centre for Tax Policy and Administration, indicated that he felt that momentum is building for something big to happen, a kind of BEPS 2.0, which would look at more systematic issues such as the allocation of taxing rights, rather than trying to patch up the existing flawed system, as has happened under the original Base Erosion and Profit Shifting Process (BEPS) process.

The Japanese G20 presidency has also signalled its strong interest in continuing the debate on taxing the digital economy and will hold a tax symposium on the subject in early June 2019 to coincide with the G20 finance ministers’ meeting in Fukuoka. Unlike the original BEPS negotiating agreement, the global south will have some input, albeit limited, into these negotiations through the OECD’s Inclusive Framework. As rising powers like Brazil, India and China have all signalled that more complete reform is necessary, and with the US more open to a global minimum effective tax rate following its recent tax reforms, Ireland’s ability to block reform may be greatly reduced this time around.

 

 

Hard to Swallow: How Ireland could do more to tackle corporate tax avoidance

Photo caption: Oanh (27) is a dialysis patient who lives in Hanoi, Vietnam. Oanh had to leave her family home in rural Me Linh District to move to the city for the hospital treatment she needs three times a week. She can’t afford a kidney transplant and has campaigned with other dialysis patients for an increase in health cover. Photo: Adam Patterson/Oxfam

This week Oxfam Ireland released a new report entitled ‘Hard to Swallow: Facilitating tax avoidance by Big Pharma in Ireland’ which indicates that Ireland’s corporate tax rules are allowing four of the world’s largest pharmaceutical firms – Abbott, Johnson & Johnson, Merck & Co (MSD) and Pfizer – to avoid large amounts of tax by shifting profits to and through Ireland.

Based on available data, Oxfam found that Abbott paid zero tax on profits of €1.2 billion declared in Ireland in 2015, costing the Irish taxpayer an estimated €155 million that year alone. Johnson & Johnson recorded profits of €4.31 billion in Ireland in 2015 but only paid an effective tax rate of six percent, €250 million less than they should have paid at Ireland’s corporate tax rate of 12.5%. Added to the Abbott figure, that means just two of the four companies avoided €405 million in tax in just one year.

It is estimated that these four pharma giants have avoided paying annual taxes of €96.6/$112 million across the seven developing countries investigated in the report, a move which impacts on the delivery of essential services that can help end poverty and inequality.

Tax avoidance is not a victimless crime

Oxfam’s research demonstrates that corporate tax avoidance continues to drive inequality and hamper the fight against poverty. It reduces the funds available to poorer countries to invest in public services that enable communities to lift themselves out of poverty. This is particularly the case for girls and women, who make up the majority of people living in poverty – and who are more likely to rely on public services.

This is not a new phenomenon. Developing countries are estimated to lose around US$100 billion annually through corporate tax avoidance, which deprives them of vital funds for hospitals, schools and other essential services. For example, in 2017, 1,317 children died at a hospital in Gorakhpur in India. A leading cause of death there is acute encephalitis syndrome, a mosquito-borne disease that can be easily prevented with proper sanitation and hygiene, but not easily cured. According to the former Health Secretary of India, 95% of the deaths could have been prevented if India had a functioning health system.

Had the Indian government received the estimated €63.8 million the four US drug companies may have underpaid in taxes annually, it could have allocated these funds to fighting encephalitis and still have had enough money left to buy Japanese encephalitis vaccines and bed nets for every child born each year in the whole of India.

Ireland’s tax code has already been implicated in facilitating some of this revenue loss - in 2017 Google was ordered to pay taxes on €194 million of profit to the Indian government which were found to have been illegally booked in Ireland.

Last week the Financial Times reported that nine out of 10 Fortune 500 companies are being investigated for tax avoidance related to $23 billion of revenue. It is not unreasonable to suspect that Ireland’s corporate tax regime is involved in some of these cases.

More tax transparency needed

Ireland has received one of the highest international ratings on tax transparency from the OECD. However, what is termed ‘tax transparency’ by the OECD and the Irish Government refers to information exchanges between tax authorities. None of this information is published or made available to legislators, investors, journalists and civil society actors. ‘Tax transparency’ is the only form of transparency that doesn’t allow public access to information. 

In 2017 the European Parliament agreed a proposal for public country-by-country reporting, which would require multinational companies (MNCs) to disclose where they generate profit and where they pay tax. However, the Irish Government has not been supportive of this proposal despite an endorsement by Brian Hayes MEP who said:

“The measures agreed by the Parliament represent a major step forward for tax transparency. Europe is leading on this issue alone. Country-by-country reporting is coming whether multinationals like it or not and I believe tax information for large companies should be made public as long as it is fair and is in the public interestFine Gael is in favour of corporate tax transparency.”

The current lack of transparency impedes attempts to understand how countries’ tax regimes operate. Because the companies in the Hard to Swallow report reveal little about their subsidiaries’ finances, attempts to quantify their tax avoidance barely scratch the surface. We limited our inquiry to countries where we could find a critical mass of data, and for those countries we located data for just 358 out of 687 subsidiaries – 56 in seven developing countries, 218 in eight advanced economies, and 84 in low tax jurisdictions like Ireland. Oxfam cannot prove that the companies are engaged in profit shifting or tax avoidance – this would require access to the companies’ tax returns. However, increasing transparency, such as through public country-by-country reporting would provide relevant actors, especially in developing countries, with data to help review and, if necessary, reform aspects of the tax system being used purely for tax avoidance.

Ireland’s Corporate Tax Roadmap

Earlier this month the Department of Finance released ‘Ireland’s Corporate Tax Roadmap’ which outlines the existing and future measures the Irish Government plans to take to address corporate tax avoidance. While it will tackle some mechanisms used, it does not go far enough to address all of the tax dodging mechanisms employed by multinationals, including big pharma companies. Most worryingly, the plan contains few, if any, mechanisms to address corporate tax avoidance that impacts developing countries.

Oxfam’s Hard to Swallow report adds to the growing body of research that indicates that Ireland is still one of the world’s biggest conduits for tax avoidance. Berkeley academic Gabriel Zucman’s most recent research indicates that Ireland facilitates the largest level of profit-shifting by US MNCs.  

The Hard to Swallow report also corresponds with the EU’s recent assessment of Ireland’s economy as part of the EU’s Semester Review, which stated that “some indicators suggest that Ireland's corporate tax rules are used in aggressive tax planning structures”. This review found that royalties sent from Ireland were equivalent to 26 percent of Ireland’s GDP in 2015 – more royalties than were sent out of the rest of the EU combined, making Ireland the world’s top royalties’ provider. High levels of these payments’ economic activity indicate that the jurisdiction is facilitating tax avoidance.

Despite this evidence, the Irish Government continues to claim that Ireland’s corporate tax regime doesn’t harm developing countries. It bases this claim on the findings from a spillover analysis undertaken in 2015 which concluded that “the Irish tax system on its own can hardly lead to significant loss of tax revenue in developing countries”. One of the arguments for this is that the amount of financial flows from Ireland to developing countries is low.

However, this spillover analysis only looked at limited data, focusing on 13 countries over two years. This meant that only 4 percent of the available data on Irish overseas investment into developing countries – from 2009 to 2012 – was examined. It also didn’t look at indirect flows through third countries like Luxembourg or Bermuda. Moreover, not all the limited data analysed could be assessed due to secrecy laws. The analysis noted this flaw saying that “a substantial percentage of [foreign direct investment] is labelled “confidential (…)” or “unspecified (…)” and this may in part go to developing countries”. Finally, the analysis ignored assessments of capital gains related to the sale of cross-border investments. Instead it focussed on the taxation of income from cross-border investments and services in contrast to the IMF’s Fiscal Spillover Reports.

At the end of 2017, Christian Aid Ireland published two reports entitled Global Linkages and Impossible Structures critiquing the Irish spillover analysis and highlighting the many mechanisms still available under Irish tax law that facilitate corporate tax avoidance. 

Changes to be implemented before the end of 2018

So, what new mechanisms are outlined in Ireland’s Corporate Tax Roadmap to address corporate tax avoidance? Firstly, all of the items outlined in the roadmap are either compulsory under EU law (as per the Anti -Tax Avoidance Directive or ATAD) or have already been signed up to by Ireland. The details in the plan concern how and when Ireland will be implementing these existing commitments. Unfortunately, Ireland has chosen to implement the least effective of these tax avoidance mechanisms at the latest available date. Most worryingly, these proposals include little or no mechanisms to address corporate tax avoidance that negatively impacts developing countries.

Most of the plan will not be implemented immediately, with some items not due to come into force for five years; however, three items are planned to be introduced before the end of 2018.

The first is the ratification of the OECD’s Multi-Lateral Instrument (MLI) by the Dáil by the end of this month. The MLI is an attempt to provide common minimum standards for all existing and future Double Tax Agreements (DTA). A DTA is legal agreement between countries to determine the cross-border tax regulation and means of cooperation between the two jurisdictions. DTAs often revolve around which jurisdiction has the right to tax cross-border activities and at what rate.

The minimum standards set out in the MLI have been designed to close tax avoidance loopholes. Article 12 of the MLI relates to defining when an MNC has a taxable presence or permanent establishment (PE) in a jurisdiction. This article makes it harder for multinational companies to claim that they don’t have a permanent establishment/taxable presence in a third country if they use a third party to conclude contracts on the company’s behalf, an approach that can be used as a tax avoidance strategy. When Ireland signed the MLI in June 2017 it chose not to adopt Article 12, missing the opportunity to close this loophole. 

In its submission to the consultation process that informed Ireland’s Corporate Tax Roadmap, Oxfam recommended that Ireland should adopt article 12 of the MLI when it ratifies the MLI later this year. No reference or discussion of this is included in Ireland’s Corporate Tax Roadmap, despite the Minister of Finance’s commitment to review this issue following news reports about the continuance of this loophole.

The second item Ireland proposes to introduce are controlled foreign corporations (CFC) rules, which, if designed appropriately, can make it less attractive for a company to shift profits to avoid tax. CFC rules can also discourage shifting profits from subsidiaries in developing countries to tax havens for EU-headquartered companies. Ireland has chosen to implement a form of CFC rules that will do little to address corporate tax avoidance. They will assess whether artificial arrangements (arrangements set up for mere tax purposes and not in line with the economic reality) are being used to avoid paying tax – something that Ireland is already supposed to be doing under its current transfer pricing legislation. The problem with this is that although it looks at artificial arrangements, it is very hard for Revenue Authorities to prove whether a structure is artificial or not.

The final change that should be implemented before the end of 2018 relates to updating Ireland’s domestic transfer pricing legislation, especially related to non-trading income, including capital transactions. Although these changes are welcome, Oxfam does not feel that addressing profit-shifting out of Ireland alone is enough to truly tackle corporate tax avoidance. Oxfam has asked that ‘two-way’ transfer pricing legislation is needed to give Irish Revenue officials the power to investigate instances where profits are shifted from a high tax jurisdiction to Ireland, to avail of its low corporate income tax rate. This would allow officials to identify potential abuses which could lead to revenue losses in other countries, especially developing countries.  

The ‘Coffey Review stated that there are adequate measures in place to address this issue. The review asserted that if transfer mispricing occurs, a foreign tax authority may adjust the transfer prices charged or taken by a foreign affiliate resident in their territory and attribute a higher quantum of taxable profit to the affiliate. If the Irish Revenue agrees with this assessment, an adjustment can be made under protocols set out in relevant Double Taxation Agreements. However, not all tax authorities of developing countries have the capacity to undertake such audits and identify sophisticated tax avoidance strategies. The Coffey Review also asserted that there is a danger of double non-taxation if the other jurisdiction decides not to exercise its taxing rights. This concern can be easily addressed by inserting a protection clause in new legislation to ensure that a reduction in taxable income in Ireland will only happen when Revenue is satisfied that the income will be assessable in another jurisdiction.

There should be more consideration in Ireland’s Corporate Tax Roadmap of the more comprehensive mechanisms needed to address corporate tax avoidance in a digitalised and global economy. These mechanisms include taxing companies on their global profits and then apportioning tax revenue according to value creation and economic activity, the development of a global minimum effective tax rate and the implementation of public country-by-country reporting. Although the Irish Government recognises that additional reforms are required to take account of the highly digitalised global economy “to ensure that tax is paid by companies where value is actually created”, it does not support any role for developing countries in this process.

What Ireland needs to do

Besides draining money from essential services, tax dodging also negatively impacts the poor because it requires governments to raise a greater proportion of their revenue from other sources. Most developing countries raise two thirds or more of their tax revenue through consumption taxes, which eat up a larger proportion of income, the poorer you are.

Ireland has a well-earned reputation of acting fairly and being a champion of the rights of poorer countries. To ensure this reputation is maintained, it needs to do more to address corporate tax avoidance that impacts the world’s poorest people.

Ireland is calling on the Irish government to:

  • Support efforts at EU level to agree meaningful legislation on public Country by Country Reporting
  • Advocate at relevant global forums for a consensus to be reached on a global minimum effective tax rate
  • Address profit-shifting, including signing up to Article 12 of the OECD’S Multilateral Instrument.
  • Review and reform Ireland’s Double Taxation Treaties
  • Strengthen Ireland’s existing Exit Tax regime and subject all new tax incentives to rigorous economic and risk assessments
  • Contribute to a second generation of international tax reforms to address the use of highly mobile value, including IP and other intangible assets.
  • Ensure that developing countries participate in all discussion concerning corporate tax reform on an equal basis

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