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  .

Former BBC journalist and manager in Belfast, Manchester and London, Editor Spolight; Political Editor BBC NI; Current Affairs Commissioning editor BBC Radio 4; Editor Political and Parliamentary Programmes, BBC Westminster; former London Editor Belfast Telegraph. Hon Senior Research Fellow, The Constitution Unit, Univ Coll. London