Is Stormont fit to take the gamble on a lower corporation tax?

The economist James Stewart of Trinity College Dublin  has revealed details of the extent of legal tax dodging  (£) involved in the Republic’s tax much vaunted 12.5% business tax rate in the Financial Times He argues that  the Republic’s government seems not be aware that a vast quantity of profits  are not subject to corporation tax anywhere in the world because of “double Irish” tax strategies.

This dodge means that two Irish companies, one of which makes sales to customers and pays hefty royalties to the second, which is resident in a tax haven such as the Cayman Islands. The sliver of profit attributable to the first company is taxed at the Irish rate of 12.5 per cent. But the lion’s share, attributable to the second company, is barely taxed at all.

Stewart records that In 2011,19 subsidiaries registered in Ireland between them avoided paying tax on €33bn of profits in this way. Apple’s was one of them. That sum is equivalent to one-fifth of Ireland’s entire economic output for that year. Several more companies have similar arrangements, but their profits are excluded from the total because their legal structure means they do not have to file accounts.

In an earlier academic paper  Stewart discussed two examples of two of the world’s most innovative companies, Google and Apple . Following Goggle’s appearance before the Public  Accounts Committee  at Westminster consideration of  Ireland’s low company tax policy at WestmInster last year after which the PAC concluded:‐

“Google defends its tax position by claiming that its sales of advertising space to UK

clients take place in Ireland—an argument which we find deeply unconvincing on the

basis of evidence that, despite sales being billed from Ireland, most sales revenue is

generated by staff in the UK. It is quite clear to us that sales to UK clients are the

primary purpose, responsibility and result of its UK operation, and that the processing

of sales through Google Ireland has no purpose other than to avoid UK corporation tax”.

and Washington

 

The U.S. Senate report on Apple computer (Permanent Subcommittee on Investigations,

2013a) found one subsidiary located in Ireland (Apple Sales International) had no

employees, but had income of $22 billion in 2011 and paid $10 million in tax. This compares

with income before tax for the group as a whole of $108 billion for 2011 with tax payments

shown in the profit and Loss account of $14 billion. The U.S. Senate Report groups Ireland

along with Bermuda and the Cayman Islands as a tax haven (p. 3) and states (p. 21) that

 

“Ireland has essentially functioned as a tax haven for Apple, providing it with minimal

income tax rates approaching zero”. This led to a letter from the Irish Ambassador to the

U.S. Senate Permanent Subcommittee on Investigations, denying that Ireland was a tax

haven.”

Stewart concludes that Ireland “is not a tax haven but has features of a tax haven.”

Basically because real jobs in benefiting companies have been created and the economy is not totally dependent on low corporation tax. Other taxes are levied at rates comparable with similar countries to raise revenue for public services.

.No doubt many in Northern Ireland wouldn’t complain if they could get a slice of job-creating action on the island of in Ireland on the same low tax terms. But with outside pressure on Dublin increasing in the long term  over the 12.5 % rate, is the market sated for tax breaks of this kind and is it too late for Northern Ireland to benefit? Is it worth taking a cut in the block grant on a wing and a prayer that a further cut in corporation tax of over 7% will create jobs?

David Cameron  implies that the decision is now up to Stormont . Pause and shudder  .

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  • Dan

    No. Those incompetent buffoons have made one calamitous expensive balls up after another. Under no circumstance should they, and especially Sinn Fein who have their heart set on destroying NI from within, be allowed anywhere near such a power.

  • Mister_Joe

    The title of this blog is much too long. It should just be “Is Stormont fit?” to which the answer is “No Way”.

  • Martina Anderson on JTI: “The reason for closing Ballymena is to increase profit margins and save money on labour costs by moving country.” Who would have thought? It seems to be lost on SF that when it seeks a reduction in corporation tax that too is all about increasing profit margins for companies. One of the biggest pressures on companies other than consolidating in countries where the low skill labour is cheaper when the manufacturing is predominately highly automated, is energy costs. Many US companies are returning manufacturing to North America as energy prices decline, an outcome of tracking. Meanwhile SF et al in Fermanagh…. It is not just numbers that need to add up, so does policy in creating a total package that means NI is good place to do business. Should political stability be mentioned…?

  • Michael Henry

    The more powers at The Assembly the better- local elected people should be making ALL the decisions- not blow ins from England who would look all day and night for a Vote here- it’s democracy the people want-

  • barnshee

    what decision would they make?
    They don`t make any at present

  • Comrade Stalin

    Many US companies are returning manufacturing to North America as energy prices decline, an outcome of tracking.

    This is a highly dubious.

    US fracking companies sell their gas on the open market, and the market sets the price. If the USA imports less gas as as a result of fracking then the world gas price drops along with it.

    that aside, taxes and duties in most European countries, especially the UK, on energy mean that gas and diesel cost a multiple of what it does in the US.

    Your math is wrong, as they say …

  • Comrade Stalin

    (*except when it comes to the Parades Commission)

  • Michael Henry

    Sinn Fein made the decision not to support the Welfare Cuts- and it looks like the Tory’s are going to blink first and stop their fines-

  • dodrade99

    You seriously believe this? Based on what evidence?

  • Michael Henry

    Based on the Evidence that Robinson will try to claim credit for this with supposed talks with the Treasury -The DUP don’t do Irony-

  • Eugene McConville
  • New Yorker

    You did not factor in smaller costs for transportation of gas and oil for US companies for domestically produced petroleum products.

  • I said energy and not just gas. Besides the volume of gas, fracking also extracts oil, on which there is an export ban and is not therefore on ‘the open market’. What’s that they’re saying?

  • Nick H

    Totally agree with last two paragraphs of this article. This would be very high risk, particularly when the rest of the world is marching in the opposite direction and working hard to make multinationals pay proper tax and in the right place.
    What reason do our politicians have for thinking that N Ireland can achieve what no-one else is likely to achieve in the current climate?
    We are in no position to take a risk like this.
    Do we want to end up like Greece?

  • Sergiogiorgio

    Babies and matches..