Welcome to the new version of European Tribune. It's just a new layout, so everything should work as before - please report bugs here.

Irish Budget abolishes corporate tax avoidance schemes

by Frank Schnittger Tue Oct 15th, 2013 at 02:02:11 PM EST

Irish Finance Minister Michael Noonan delivered his 2014 budget to the Dail today - about 2 months earlier than usual to give the European Commission more time to review and approve its provisions. Taoiseach Enda Kenny had announced last weekend that Ireland would exit the bailout programme on December 15th., so this is the last budget to be overseen by the Troika.

The Troika had sought to insist that Noonan take 3.1 Billion (= 1.9% of GDP) out of the economy in tax increases and spending cuts, a call supported by the Economic and Social Research Institute. The Government has restricted this to €2.5 Billion (= 1.5% of GDP) made up of spending reduction (€1.6 Billion) and tax increases of (€0.9 Billion).

This is planned to reduce the budget deficit from 7.3% in 2013 (Troika target 7.5%) to 4.8% of GDP in 2014 (Troika target 5.1%) and 2.9% in 2015. This should be sufficient to generate a small primary surplus next year and reduce the overall Government debt to GDP ratio to 120 percent at end-2014, 118.4 percent at end-2015 and 114.6 percent at the end of 2016. Despite this contractionary policy, the Government is forecasting 0.2% GDP growth in 2013, rising to 2.0% in 2014.

From a US perspective it is noteworthy that Ireland's national debt and projected annual deficits are much higher than that of the USA and yet no one is panicking. On the positive side, at least we have a functioning budgetary process!

Of more interest to international observers, Mr. Noonan has announced that companies will no longer be able to incorporate in Ireland without also being tax resident here, and so will not be able to use tax avoidance schemes like the double Irish and dutch sandwich to evade the Irish corporation tax rate of 12.5%. Companies like Google, Microsoft and Apple have been in the news recently for utilizing such schemes to move Billion of Euros to tax havens like Bermuda virtually tax free.

The issue of low Irish corporate tax rates is reported to have surfaced in German coalition talks between the CDU and SPD, and so the timing of this change may not be entirely unrelated. Whether he is doing Merkel a favour or seeking to relieve pressure on Ireland to increase it's 12.5% Corporate Tax rate is unclear. The measure is not scheduled to kick in until 1st. Jan, 2015 and so will not effect revenues for 2014. It has not been stated how much additional revenue the Minister expects to collect from this measure in future years, and whether he expects some multinationals to relocate outside Ireland in response to his change.


The spending reductions will impact mainly on pensioners (cancellation of phone allowance) and unemployed young people aged below 25, whose job seekers allowance will be reduced to €100 per week. This is unlikely to help reduce Ireland's youth emigration numbers. Sickness benefits, free medical care for elderly and low income patients, and maternity benefits are also reduced.

The tax increases will impact mainly alcoholic drinks, cigarettes, interest on bank deposits, and private health insurance (generally paid by the better off), and there are also increased levies on banks and pension funds.

On the positive side children under 5 will now receive free primary medical care, and the Minister for Education has secured agreement to hire 1,250 extra teaching staff. Health care staffing numbers will be reduced by 1,000 less than originally planned, and recruitment of Gardai to the police force is to recommence. A temporary VAT reduction to help the tourist industry has been extended and the air travel tax is to be eliminated. Now is a good time to visit Ireland!

The Government is hoping that this will be the last of six austerity budgets and that future budgets will be somewhat more expansionary whilst staying within the EU Stability and Growth Pact pact parameters.

The Government has 25 Billion cash on hand to reduce its dependency on sovereign debt markets and fund the annual 7.5 Billion interest bill on its debt. Nevertheless all the forecasts above are dependent on the EU meeting it's growth targets and the USA not imploding due to a debt default, and the Economic and Social Research Institute gives the Government only a 50% chance of doing so without further retrenchment in future Budgets.

Display:
So will companies like Google, Microsoft and Apple really pay more tax in Ireland, or will they move their tax avoidance operations elsewhere?


Index of Frank's Diaries
by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Tue Oct 15th, 2013 at 04:18:01 PM EST
They'll probably just move to Luxembourg and Lichtenstein. And since many prominent Germans use those countries for tax evasion, we'll see a marked reduction in complaints from the German government...
by Metatone (metatone [a|t] gmail (dot) com) on Fri Oct 18th, 2013 at 06:59:50 AM EST
[ Parent ]
Hell, that could be the whole point of this bullcrap. Make their banker friends happy,
by Colman (colman at eurotrib.com) on Sun Oct 20th, 2013 at 05:11:28 PM EST
[ Parent ]
Google, Apple and eBay have real operations based in Ireland, doing real work. Those probably aren't going away in the short term.

Might well hit GDP massively though, if they decide they're obliged to restructure things to take advantage of another tax plan and their turnovers disappear.

by Colman (colman at eurotrib.com) on Sun Oct 20th, 2013 at 05:10:45 PM EST
[ Parent ]
They keep their domestic and international revenues separate They can re-route their international revenues through some other "tax haven" without effecting their domestic revenues or operations. Not sure how this impacts on GDP figures, though, which should mean nothing, but may actually have some impact because of the way "markets" view debt/GDP ratios as a key measure of debt sustainability.

Index of Frank's Diaries
by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Mon Oct 21st, 2013 at 04:54:22 AM EST
[ Parent ]
Headlines: "Ireland, again the sick man of Europe: GDP drops 10% in two years", "The Celtic Bagpuss: Debt-to-GDP ratios climb precipitously." etc.

No actual effect on either government revenues or the domestic economy, catastrophic  effects on the markets because they're insane.

by Colman (colman at eurotrib.com) on Mon Oct 21st, 2013 at 05:03:49 AM EST
[ Parent ]
We're already half way there - GDP is stagnating (partly because of the patent cliff) - whilst GNP and employment are growing. We could be in for quite a prolonged period of headline statistics not reflecting real growth.

Index of Frank's Diaries
by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Mon Oct 21st, 2013 at 05:47:03 AM EST
[ Parent ]


In the Neurozone, there can be only one.
by Migeru (migeru at eurotrib dot com) on Mon Oct 21st, 2013 at 05:55:26 AM EST
[ Parent ]
Ireland's `patent cliff' poses problems for exit of bailout - FT.com

The metal reactors at Pfizer's 200-acre manufacturing plant in Ringaskiddy that make the drug Viagra are not as busy as they used to be.

Last month the "little blue pill" taken for erectile dysfunction became the latest blockbuster medicine to lose protection from generic rivals due to the "patent cliff", or the expiry of patents on blockbuster drugs, a phenomenon that is reducing corporate profits and putting a dent in Ireland's export-led recovery.

"We have downsized a number of operations in Ireland to cope with the downturn in demand caused by drugs coming off patent," says Paul Duffy, Pfizer's vice-president of external supply. "But this is an industry-wide issue," he says.

Over the past 18 months Pfizer has shut a neighbouring manufacturing facility in Cork, put another plant up for sale and cut hundreds of jobs in Ireland in response to the sharp drop in demand.

Several other big companies based in Ireland have also been hit by the patent cliff, with blockbuster drugs from Eli Lilly, Takeda Pharmaceutical Company and Merck , which generate sales worth more than $1bn a year, now facing generic competition.

Between 2011 and 2016 dozens of blockbuster drugs lose patent protection and is a global problem for Big Pharma. But the scale of the pharmaceutical industry in Ireland, which is the fifth-biggest exporter of drugs in the world, leaves it particularly vulnerable, as the country prepares to exit its international bailout in December.



Index of Frank's Diaries
by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Mon Oct 21st, 2013 at 06:56:22 AM EST
[ Parent ]
The laid off employees could set up generic manufacturing plants. Or?

In the Neurozone, there can be only one.
by Migeru (migeru at eurotrib dot com) on Mon Oct 21st, 2013 at 07:06:58 AM EST
[ Parent ]
Or manufacturing the new medicines that the pharmaceutical companies used their huge profits to develop.
by gk (g k quattro due due sette "at" gmail.com) on Mon Oct 21st, 2013 at 07:09:56 AM EST
[ Parent ]
Yea sure, and if you are made redundant by your bank you can just up your own bank.

Index of Frank's Diaries
by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Mon Oct 21st, 2013 at 07:26:41 AM EST
[ Parent ]
Amount of Government debt is `elephant in the room

Independent TD Stephen Donnelly said it was an "absolute disgrace" that neither the Minister for Finance nor the Minister for Public Expenditure and Reform were in the Dáil to hear the views of TDs, and that they had left while Fianna Fáil TDs were giving their response.

He also believed the analysis would show that those who had less to give would have to pay more, as he claimed had happened in the last two budgets.

The question was: "Is this budget fair and will this budget kick-start the social and economic recovery necessary?"

The Wicklow TD said the last two budgets had taken more from the less well-off and that despite repeated requests for an equality analysis of budget proposals, the Government had failed to provide them.



Index of Frank's Diaries
by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Tue Oct 15th, 2013 at 04:52:52 PM EST
European Tribune - Irish Budget abolishes corporate tax avoidance schemes
This is unlikely to help reduce Ireland's youth emigration numbers.

Well it might, if they can't afford a bloody one way ticket.

It is rightly acknowledged that people of faith have no monopoly of virtue - Queen Elizabeth II

by eurogreen on Wed Oct 16th, 2013 at 06:05:26 AM EST
Of course it'll help the number. Up they'll go.
by Colman (colman at eurotrib.com) on Wed Oct 16th, 2013 at 06:39:58 AM EST
[ Parent ]
Ireland had third highest deficit in 2012
Ireland, with a deficit in percentage of Gross Domestic Product (GDP) of 8.2 per cent, placed third behind other debt-burdened countries Spain (10.6%) and Greece (9.0%).

---snip---

When it comes to the ratio of government debt to GDP,Ireland again placed highly, with the fourth highest ratio of 117.4 per cent, behind Greece (156.9%), Italy (127.0%) and Portugal (124.1%).



Index of Frank's Diaries
by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Tue Oct 22nd, 2013 at 10:13:07 AM EST
"Not now dear - someone's wrong on the Internet", as the old joke goes.

I generally ignore the Irish Times as a reliable source of information.  Especially in recent years.

A better picture of how the voluntary indebtedness due to the insane Bank Guarantee of 2008 affects individual Irish people can be found in Micheal Taft's article at http://www.irishleftreview.org/2013/09/30/sea-debt/
(no-link newbie) demonstrates that Ireland has:

a) The highest government debt per capita in Europe (by a country mile) and

b) The second highest debt as % of GDP per capita income when one tries to adjust for the inflated GDP figures due to multinational tax avoidance assiduously facilitated by Irish tax law.

by Wanda on Tue Oct 22nd, 2013 at 10:49:56 AM EST
[ Parent ]
Below is Michael Taft's table with GDP adjusted for the multinational profits distortion you mention:

If the abolition of non-tax resident companies incorporated in Ireland results in multi-national profits being re-routed through other tax havens, then the Irish debt/GDP ratio will look much worse and (as discussed above) international markets may take a different view of Irish debt sustainability and raise interest rates on Irish debt accordingly - probably leading to a need for another bail-out if default is to be avoided.

Index of Frank's Diaries
by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Tue Oct 22nd, 2013 at 11:39:02 AM EST
[ Parent ]

international markets may take a different view of Irish debt sustainability and raise interest rates on Irish debt accordingly - probably leading to a need for another bail-out if default is to be avoided.

Hm... alternatively one could simply view these levels of debt as unsustainable as does, for example, Yanis Varoufakis, and default now, rather than later.  The component of private debt that was taken on during the bank guarantee of 2008 is especially odious.

It's jubilee or permanent debt slavery for Europe.  Ireland would be a good place to start.

by Wanda on Wed Oct 23rd, 2013 at 09:01:26 AM EST
[ Parent ]
It's understandable Frank, but you have been thoroughly taken in by carefully formulated cute-hoorism of the usual kind.

The Dutch Sandwich with Double Irish is alive and well and sucking tax euros out of the public purses of the EU.  I'm sure a note went round to beneficiaries before the Budget telling them not to worry.

The palaver about stateless companies was a sop to the German SPD.  Only time will tell whether it worked especially as Portugal wants to get in on the begger-your-neighbour tax arbitrage game.

See Donagh Brennan's analysis here at the Irish Left Review.

http://www.irishleftreview.org/2013/10/18/budget-2014-irish-corporation-tax-regime-change/

by Wanda on Wed Oct 23rd, 2013 at 09:08:57 AM EST
As you suggest, I am no corporate tax lawyer, but I read the minister's statement as an intention to eradicate the double Irish and Dutch type tax avoidance schemes. The budget statement is always vague as to exactly how this will be accomplished - we have to await the Finance Act for the details - but Noonan is playing a dangerous game if he thinks he can fool the Germans et al when it comes down to the amount of corporate tax actually paid. If Ireland wants "sympathy" as regards it's bank originated debt obligations, it had better start collecting at least 12.5% tax on all companies operating or incorporated here.

I have no doubt Google, Apple, Microsoft et al will try to devise other tax avoidance measures, perhaps not involving Irish registered companies at all. But I think that Noonan has correctly realised that the days of EU Members allowing themselves to be used for blatant tax avoidance are numbered. Google, Apple, Microsoft et al  may yet be grateful to have to pay "only" 12.5% on their EU originated profits. I don't think the major EU member states will tolerate anything less.

Index of Frank's Diaries

by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Wed Oct 23rd, 2013 at 09:45:04 AM EST
[ Parent ]
Did we ever work out what the effective tax rates on the megacorps were?
by Colman (colman at eurotrib.com) on Wed Oct 23rd, 2013 at 10:17:41 AM EST
[ Parent ]
The Tax Justice Network has some figures on that, computed by looking at how cash flows appear and disappear around the world's secrecy jurisdictions.

The short version is that the megacorps actually do pay taxes in first-world countries, albeit not as much as domestic companies. Where the tax fraud is really rampant - going into negative effective tax rates in some jurisdictions - is in the colonies.

One might even argue (though the TJN stops short of doing so) that a major reason there is no serious pushback against transnational corporate tax fraud from the core economies is that it is an integral part of the colonial tribute extraction system.

- Jake

Austerity can only be implemented in the shadow of a concentration camp.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Wed Oct 23rd, 2013 at 03:32:30 PM EST
[ Parent ]


Display:
Go to: [ European Tribune Homepage : Top of page : Top of comments ]

Top Diaries