IRELAND may have agreed to raise large firms’ corporate tax rate to 15pc but the EU still considers the country a tax haven.
group of six MEPs led by Dutch Labour Party deputy Paul Tang will arrive in Dublin today to quiz Department of Finance and Revenue officials, TDs, tech companies, trade unions and economists about Ireland’s tax policy.
Ireland is one of a group of EU countries – including Luxembourg, The Netherlands, Cyprus and Malta – that has been labelled a tax haven by MEPs. That view is still held by many in Europe, despite the finance minister signing up to a landmark global tax deal negotiated by the Organisation for Economic Cooperation and Development ( OECD) last year.
“We know that Ireland is a hub for tax avoidance,” Mr Tang told the Irish Independent ahead of the visit. “I appreciate the real foreign direct investment by the American multinationals, but it’s more what the IMF calls the ‘phantom investment’.”
He is talking about huge flows of foreign direct investment (FDI) into and out of Ireland that have no links with the domestic economy.
A lot of this FDI does remain in Ireland.
The number of people employed in foreign-owned multinationals hit a record 275,384 last year, while the corporate tax take is set to come in at close to €20bn this year, potentially overtaking Vat as the Government’s second-biggest revenue-raiser.
But, according to the International Monetary Fund (IMF), the flows into and out of Ireland are too large to justify. It estimates that Ireland – along with Luxembourg, The Netherlands, Hong Kong, the British Virgin Islands, Bermuda, Singapore, the Cayman Islands, Switzerland and Mauritius – hosts more than 85pc of the world’s ‘phantom’ investments, with money flowing between jurisdictions to search for the lowest tax rate.
What the EU, and Mr Tang in particular, is interested in is “letterbox” or “shell” companies: firms that register with the Companies Registration Office but employ nobody, have no physical premises and do little actual business here.
Trinity College researchers Cillian Doyle and Jim Stewart discovered recently that €118bn was funnelled by Irish special purpose vehicles – known as ‘section 110’ entities, which had no staff and paid little tax – to Russian firms between 2005 and 2017. A further €17bn was raised by those firms on the market here between 2018 and 2021.
The EU tabled a draft law last Christmas that would tighten up the rules for shell companies that have no income, staff or premises. It is soon to be voted on by MEPs, but it will also have to be agreed by EU governments before it becomes law.
The OECD deal – which raises the minimum tax rate for multinationals to 15pc (known as ‘pillar two’) and shifts where firms pay their tax, based on sales (‘pillar one’) – will have little effect on shell companies.
But that deal now looks like it is on the rocks.
The US, particularly Republicans, are not keen on adopting it, and with the party on track to win a majority in the House of Representatives in mid-term elections this November, it could be difficult to get it through.
Fianna Fáil MEP Billy Kelleher said ‘pillar one’ of the deal – which could cost Ireland an estimated €2bn a year in lost tax revenue – is “really in trouble”.
“Now this is mid-term elections, and political fever is heightened, but I sense a strong view from the Republican side of the aisle that, you know, they don’t view pillar one with any warmth and they’re even reluctant to move on pillar two.
“That will be a very important part of whether or not this is an international agreement or whether it falls. If the United States is clearly going to oppose it, well then we’re very much back to the drawing board, in my view, because the European Union signing it without the United States I don’t think is a runner.”
The EU is having its own issues negotiating ‘pillar two’, with Hungary the last hold-out on a deal after it lodged a last-minute veto in the spring.
Mr Tang hopes the EU will agree to move ahead without Hungary, but Ireland is unlikely to get on board with that, as it could set a precedent for future tax deals.
Finance Minister Paschal Donohoe said last week that he does not want “to freeze anybody out” of a deal and that “making decisions on the basis of unanimity is a really important principle”.
“If Hungary doesn’t play ball, Paschal Donohoe has to play ball,” Mr Tang said. “We very much hope that Ireland doesn’t give in to the blackmail of Hungary.”
Today’s European Parliament delegation to Ireland – which includes three left-leaning French MEPs, Aurore Lalucq, Claude Gruffaut and Manon Aubry, and two centre-right deputies, Isabel Benjumea from Spain and Ludek Niedermayer from the Czech Republic – will also meet with representatives from Apple, Google, Microsoft and Facebook.
Last year, Public Expenditure Minister Michael McGrath said other EU countries’ attempts to siphon off some of Ireland’s bumper tax revenues were “envious” of our success in attracting large multinationals here.
But Mr Tang has no truck with that argument.
“By now, Ireland is one of the more wealthy members of the European Union. It’s time to let go of this idea that you are just a poor island far away from everything.
“Please, you’re part of the EU: Think about your European partners and come forward with the fight against tax avoidance.”