I can sound like a broken record when it comes to Ireland’s role in corporate tax avoidance. But the hits just keep coming.
One of the latest is Oxfam research titled “Hard to Swallow” on how large pharmaceutical companies shift profits to and through Ireland to cut global tax bills. Four such companies – Abbott, Johnson & Johnson, Merck and Pfizer – declare suspiciously large profits in low-tax locations like Ireland, and post much lower profit figures (or even losses) in countries with higher tax rates.
Between 2013 and 2015, Abbott declared profit rates of 8 percent in Thailand (where the tax rate is 20 percent), 4 percent in Chile (tax rate of 21 percent) and 75 percent in Ireland (with our nominal tax rate of 12.5 percent).
Over that same period, Abbott posted losses of 36 percent in India where it would have faced a tax rate of 34.2 percent.
For the seven poor countries focused on in the Oxfam study – Chile, Columbia, Ecuador, India, Pakistan, Peru and Thailand – the tax lost every year through these manoeuvers is estimated to be, at a minimum, €96.6 million.
But its loss is not necessarily much of a gain for Ireland: Abbott declared profits of €1.2 billion in Ireland in 2015 but paid no Irish tax on those profits at all.
How it pulled off this trick is not entirely clear. One juggle may have been to offset the cost of claimed intellectual property imports against tax, a provision introduced into the Irish tax code in 2015 and which is also availed of by tech giants like Apple to minimise its tax liabilities.
Another (related) stratagem used by Abbott may, Oxfam speculates, be something called the “single malt”, the subject of a recent briefing note by Christian Aid, building on earlier work by that development NGO. They describe how the ploy works:
“(i) A US-headed multinational company places intellectual property (IP), to which it can attribute a significant proportion of its profits, in an Irish-registered but Malta-resident company. (ii) The multinational books non-US sales income in a second, Irish-registered and Irish-resident company. (ii) This second company then channels the income out of Ireland again as royalties or licence fees paid to the Malta-resident company that owns the IP. This reduces the tax paid on the sales income in the countries where the sales are actually made; puts profits instead in a low- or no-tax environment; and allows US multinationals to avoid US anti-avoidance rules …”
Christian Aid has found that Teleflex Inc, a maker of medical devices with operations in Limerick and Athlone, set up in July of this year a “single malt” structure by establishing a subsidiary’s tax residency in Malta. This happened despite a Department of Finance spokesperson claiming in June that recent changes in the US tax code would counter the appeal of the “single malt” for tax avoidance purposes.
Ireland clearly remains wide open for business when it comes to tax avoidance. And, if you wanted to be purely cynical and self-interested about it, maybe that makes a certain sense: at least some tax revenue is sometimes diverted here, and the interests of sectors important to the Irish economy are protected.
Oxfam notes that nine of the top 10 pharmaceutical companies in the world have Irish operations and that pharmaceuticals make up about half of all Irish goods exports each year. The four companies they hone in on in their recent study employ some 10,000 people here.
So is it likely to matter to most Irish people that countries like Ecuador and India are losing out as a result of these tax shenanigans? An unpublished paper presented at a seminar in the School of Politics and International Relations (where I work) in UCD last week suggests that it might.
Aidan Regan of University College Dublin and Liam Kneafsey of Trinity College found that when presented with an argument challenging Ireland’s tax avoidance regime on the grounds of international fairness, some survey respondents expressed misgivings about the system (though most people strongly support it).
For those of us concerned with global justice that finding provides some prospect that we might be able to push for changes on ethical grounds.
And, if not, there is always the possibility that the rest of the world will get sufficiently pissed off with Ireland depriving them of taxes that change will be forced on us by outside pressure. In any event, the current model is neither fair nor, probably, sustainable.