Policy and Advocacy

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

This week 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 week 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.

 

 

Take Action Now to Keep Families Together

Great news - with the help of our supporters - the Family Reunification Bill is one step closer to being enacted into law.
 
Last week, alongside our supporters, we asked the Oireachtas Business Committee to make sure a bill that will enable refugees living in Ireland to be reunited with their loved ones progresses to the Dáil – and they listened! 
 
While this is amazing news, we urgently need your help again to make sure this bill becomes law.  
 
This Thursday (6th Dec), the bill will be brought to the Dáil and TDs will vote on whether it should progress to the next stage (this is second stage and there are three more stages to go!). 
 
Please take action today and ensure TDs vote in favour of the Family Reunification Bill this Thursday. 
 
Just click on the link below so that you can email us and give consent to us sending a printed Christmas card to your TD asking them to support the bill. You will also be asked to let us know your constituency so that we know who to contact on your behalf. 
 
Families should always be together, especially at Christmas – together, we can make this happen. 
 
 

Keep Families Together This Christmas

 
Families should always be together, especially at Christmas – but that’s not the case for refugee families living in Ireland right now. 
It is now seven months since the International Protection (Family Reunification) (Amendment) Bill 2017 passed through the Seanad with cross-party support and it is still waiting for a slot in the Dáil. 
 
This Bill aims to undo the unintended consequences of a law brought in 2015 which narrowed the definition of family for refugees to a spouse and any children under 18. This means refugees living in Ireland remain separated from their children over 18, siblings, parents, grandparents and guardians this Christmas. 
 
This causes more pain and trauma for families fleeing conflict, persecution, poverty and disaster – people who have already suffered enough and are now trying to rebuild their lives. 
 
We need to make sure this bill gets the urgent attention it needs to be brought to the Dáil - so that that families can find refuge safely and together. 
 
An important meeting is taking place tomorrow which will decide if this bill will be brought to the Dáil before Christmas. 
 
Please take action today and contact those involved in the meeting, asking them to ensure that this bill progresses now so that families desperate to be reunited with their loved ones can be together as soon as possible.  

Aid and the next EU budget

The development of the next Multiannual Financial Framework is an opportunity for the European Union and its Member States to agree on how to implement a global vision for development cooperation that is rooted in European values. 

Róisín Hinds of Oxfam Ireland appearing before Joint Oireachtas Committee on Foreign Affairs and Trade with Suzanne Keatinge of Dóchas and Trócaire’s Niamh Garvey. Photo: Oireachtas TV

Brexit might be dominating headlines across the European Union – but it’s not the only show in town. The EU’s development assistance and humanitarian cooperation instruments will be undergoing a fundamental shift in the coming months, with the development of the new Multiannual Financial Framework (MFF). The MFF will set out the EU’s budget for the seven years from 2021 to 2027. Not only will it lock down the EU’s priorities in terms of financial allocations and the instruments used to implement them, it will help set the EU’s future trajectory in a range of policy areas, including development cooperation, humanitarian assistance, human rights and foreign policy. Last month, Oxfam Ireland appeared before the Joint Oireachtas Committee on Foreign Affairs and Trade with our colleagues in Dóchas to discuss the future of EU aid and Ireland’s role in its development.

Ireland’s aid programme, which is not only an important feature of the country’s foreign policy, also demonstrates its commitment to human rights. During the recent launch of the public consultation for Irish Aid’s new policy, Tánaiste Simon Coveney said that Ireland’s “development programme last year reached over 120 countries. It is recognised as one of the best in the world and its good reputation opens doors for Ireland everywhere… The effectiveness of Ireland’s development cooperation programme amplifies Ireland’s voice within the UN. It will be a significant asset in our tough race to win a seat on the UN Security Council for 2021 and 2022”.

Ireland has always been recognised as a donor which “excels” in delivering effective aid. Consecutive OECD Development Assistance Committee (DAC) peer reviews have praised the quality of Ireland’s aid programme, including its focus on the poorest and most vulnerable countries and the commitment to untied aid. The added value for Ireland working with the EU in development and humanitarian action is clear and acknowledged – cooperation provides economies of scale, efficiency and can enable a stronger impact. With EU aid instruments comprising 46 percent of Ireland’s multilateral aid spend in 2017, it is critical that the Irish government plays a leading role in the development of the new MFF to ensure that EU aid is being used for the intended purposes to alleviate poverty and reduce vulnerability.

A streamlined architecture: flexible but not accountable

In May this year, the European Commission (EC) presented its plans to overhaul the EU’s budget, with the MFF proposal identifying the priorities, budget and architecture for 2021 to 2027. The title of the EU’s budget proposal, “Neighbourhood and the World”, encompasses all EU external actions, including development cooperation. Presenting the proposal, the EU’s High Representative on Foreign Affairs and Security Policy, Federica Mogherini, stated that it is “first and foremost a political statement in favour of a stronger European Union in international affairs”.

The most substantial change in the proposal is the creation of a broad single instrument, the Neighbourhood, Development and International Cooperation Instrument (NDICI), which merges 12 external funding instruments – including the European Development Fund – into one. Civil society has long advocated for the simplification of EU funding instruments to avoid fragmentation and support flexibility. However, the EC’s proposal puts varied development and foreign policy objectives under the same umbrella and fails to achieve balance by reconciling different policy areas. As Europe’s political environment becomes increasingly insular, oversimplification risks promoting short-term EU domestic interests – particularly on migration and security – at the expense of international cooperation and development.  

As it currently stands, the NDICI’s objectives are overwhelmingly focused on foreign and security policy. Poverty eradication, which should be the primary focus of the instrument, is not explicitly mentioned in its aims (Article 3). The policy framework (Article 7) and the general principles (Article 8) of the regulation are vague and would benefit from strengthened language and an increased focus on alleviating poverty and reducing vulnerability. 

The commitment to spend 0.7 percent of collective EU Gross National Income (GNI) on Official Development Assistance (ODA), as well as the benchmarking of 0.2 percent to the least developed countries, are welcome and should be defended. However, Oxfam would like to see these commitments included in the main body of regulation text – and not just in the introduction, which is not legally binding. While we welcome the Commission’s proposal to keep a separate humanitarian instrument, we recommend that the budget is increased by a further €2 billion annually to address and complexity and scale of humanitarian need. The MFF will not only determine the role the EU can play as a leading humanitarian aid donor, it will also shape the quality, effectiveness and efficiency of the aid that humanitarian partners are able to deliver.

Migration, aid and short-sighted priorities

While the Commission’s proposal includes several positive elements on migration and displacement, such as focusing support on “human rights-based migration policies, including protection programmes” [Annex II, section 3(f)], and “development-based solutions for forcibly displaced persons and their host communities” [Annex II, section 3(i)], the overall approach to migration is not in line with the EU’s global strategy or OECD DAC definitions of Official Development Assistance. The proposed regulation includes an ambition to stem irregular migration to Europe, with references to “fighting”, “mitigating” or “tackling” the root causes of irregular migration. There is also a 10 percent financial envelope set aside for partner countries based on their performance in several areas, including cooperation on migration. This raises series concerns around the conditionality of aid. In addition, the budget includes a €10.2 billion “emerging challenges and priorities cushion”, with little detail on what this is for, how it will be spent and how it will be governed. In the current political context, the risk is that it will be used for short-term EU political interests, rather than long-term development which is based on development effectiveness principles.

Migration has been well-established as a powerful poverty reduction tool for migrants, their families and wider communities, and as having an important role in contributing to the UN’s Sustainable Development Goals (SDGs). While several SDGs recognise the economic value of migration, Target 10.7 specifically calls for the facilitation of “safe, regular and responsible migration” and the implementation of “well-managed policies”. The use of NDICI funds to stem irregular migration puts the EU’s long-term objectives of building resilience and sustainable development at risk and may even lead to a destabilisation in conflict-affected regions.

Analysis of the EU Trust Fund for Africa (EUTF) and other programmes designed to prevent migration reveals that efforts to reduce cross-border movement between African countries has resulted in some communities losing access to livelihoods, for example, by restricting access to local markets across the nearest border or by reducing intra-continental migration. Oxfam analysis of the EUTF’s migration management projects also finds that 97 percent of the budget has gone to containment and deterrence and only 3 percent has been allocated to making migration routes safer and cheaper. This illustrates donors’ disproportionate focus on reinforcing borders and blocking mobility over long-term development and human rights-based solutions.

 

Maintaining the integrity of aid

As Ireland looks to expand global presence and meet the international commitment to 0.7 percent spending, it is critical that we play an active role in the development of the new MFF. Ireland must stand against the instrumentalisation of aid for migration control, ensure respect for development effectiveness principles and preserve development objectives, which by their nature, should remain autonomous from foreign policy interests. In the next MFF, aid must only be used for its intended purposes of alleviating poverty and reducing vulnerability; for programmes that address the needs of displaced people and host communities and to increase the development benefits of migration – not to contribute to the EU’s short-term foreign policy ambitions to prevent migration.

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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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