The pandemic could signal the end of Ireland’s days as a tax haven

Ireland has again come under scrutiny for its exceptionally generous corporate tax system after the government revealed that receipts have been booming.

Governments across the world have seen their public finances ravaged by the coronavirus pandemic but Ireland – where many multinationals pay between 2 and 4 per cent tax on their profits – has held up remarkably well.

This is likely to put Ireland, and other countries that have laid out the red carpet for multinational companies and their tax lawyers, in the spotlight as the economic response to the pandemic moves forward.

While taxes on consumption like VAT were down as people stayed home during lockdown, Ireland took in an extra €1.7bn (£1.5bn) from taxes on company profits compared to a year earlier.

Why? There is some debate among tax haven watchers about the exact reason for Ireland’s healthy public finances this time around, and it’s worth noting that there is a long lag between companies making profits and paying tax on them.

Some analysts have posited that perhaps the date that Microsoft (which has a big presence in Ireland, on paper at least) filed its accounts might have boosted the Irish exchequer.

But, for Alex Cobham, chief executive of the Tax Justice Network, such details merely underline the “ridiculous” reliance of Irish government revenues on just a few companies and their (legal) tax dodging.

“Ireland is still making out very nicely from procuring profit shifting at the expense of many other EU member states, even as the pandemic imposes grave health, social and economic costs on everyone,” says Cobham.

In 2015, Ireland’s tax system led to the absurdity of the country’s economy growing 34.4 per cent in a single year. Had you been in Ireland that year, you would not have noticed this astonishing surge in output, because it was almost entirely down to an accounting fiction.

Apple’s tax team had taken advantage of a structure known as the “Double Irish” to shift some of its vast revenues to the country.

In 2019, Ireland’s tax revenues rose to a new record €59bn, almost double the €31bn collected in 2010.

The Irish economy has dragged itself out of one of the deepest recessions of any country outside of Greece in the wake of the financial crisis. But it has not doubled in size. Some of the extra billions have come from companies shifting profits from countries where they are taxed properly to Ireland, where they are not.

Ireland is not alone. In Europe, the Netherlands and Luxembourg are among countries that have taken similar advantage. The UK facilitates a vast amount of tax avoidance via the City of London.

Whatever you call this type of activity, the central fact remains: Ireland has taken in billions of additional tax revenues at the expense of other countries.

The loss to those countries is many times more than Ireland’s gain. The only real winner is the multinational that gets away with it. So it is ludicrous to hear politicians speak of “tax competition” when what they really mean is a race to the bottom in which ordinary people can only ever lose.

It is not just by eroding the amount governments have to spend on schools, nurses, hospitals and roads that this is damaging. It also gives multinationals an unfair and highly distorting advantage over smaller competition. Why should a local shop pay a higher tax rate than Amazon, for example?

In the wake of the destruction wrought by Covid-19, when countries look to raise revenues to pay for the measures they have put in place to save people’s jobs they are likely to look more closely than ever before to the billions given up to tax havens.

To seek to put the burden on the average worker before taxing large multinationals properly would be deeply unwise politically.

So what is to be done?

The Tax Justice Network wants three main things. First, a single set of rules to calculate tax on companies’ profits globally which calculates payments based on where activity actually happens, not just where an accountant can achieve the lowest tax bill.

Second, meaningful action to clamp down on tax havens based on objectively verifiable criteria. This would get past the out-of-date focus on the palm-fringed Caribbean islands and include countries like Ireland and the Netherlands.

And, third, genuine country-by-country reporting for multinational companies. This approach would reveal the full scale of profits that are shifted artificially to low-tax jurisdictions.

These aims have been on the table for some time now, but there is growing belief that the present extraordinary circumstances might finally bring about the consensus needed to enact them.