Menu
Ireland's political and cultural magazine
2 4 September 2016
NEWS
F
or the current partnership Government and its
political-allies-in-opposition the end of
summer has brought with it some rather
unpleasant affairs. And a string of seemingly
never-ending, insider scandals rocking the
Irish charitable and sports ‘sectors’, is just a small
headache, compared to the migraines of Irish economic
and tax-policy fiascos.
The reason is simple: in its quest for
sustaining our decades-old economic
growth model of beggaring our neigh-
bours, Ireland always relied heavily on
our PR-and-charm-driven interna-
tional reputation for being a ‘straight
down the line’ regulatory and tax arbi
-
trage location for the Multinationals.
Thus, in the absence of any dramatic
change in the way we intend to do
business here, no Irish Government
could afford the country’s reputation
to be marred by the realisation that
our entire economic strategy is dis
-
torted by the very same Multinationals
we so desperately need to sustain the
narrative.
The Paris-based OECD has been
probing international tax regimes, at
the request of the G20 group, in the
hope of developing a face-saving mechanism to curb the
more egregious abuses of global tax codes. Ireland was
in its crosshairs from the start. A US Congressional
investigation and a number of on-the-record statements
by senior US politicians flashed the spotlight on Ireland
as an alleged ‘tax haven’ for US corporations, opening
Dublin to the scrutinisations
of the OECD and the G20 tax-
policy artillery. Through
traditional and alternative media,
the global public was fed a steady flow
of leaked documents from around the world highlight-
ing Ireland’s prominent position in tax avoidance by
Multinationals.
With all that past attention, the
government in Dublin did not need
the EU Commission pointing a finger
at Ireland as one of the most aggres-
sive facilitators of tax optimisation in
Europe. And yet, this is exactly what
is unfolding in front of our eyes today.
In simple terms, within a span of just
50 days, the Irish establishment has
been hit by a perfect international
storm.
The first thunder rolled over our
shores on July 12 when the CSO
released the final numbers for Irish
GDP for 2015. Declaring that the Irish
economy had grown by a whopping
26.3 percent in one year would have
been a cause for celebration any-
where on earth. Ireland had set the
record for any OECD economy in GDP
and GNP growth terms. Alas, the announcement drew
international ridicule of Dublin of an intensity not seen
since the night when Dustin the Turkey flopped at the
Eurovision. Paul Krugman declared the number “lepre-
chaun economics”. Micheál Martin, the ever-adaptable
leader of the pro-Government opposition (!) had to make
Not the rate,
the loopholes
Tax-haven status distorts,
globally and domestically
The 26% GDP
growth rate drew
international
ridicule not seen
since the night
when Dustin the
Turkey flopped at
the Eurovision
by Constantin
Gurdgiev
INTERLOPER
September 2016 2 5
Ireland’s entire
Multinational-based
model of economic
development has been
exposed by the Apple
decision as a zero-
sum game
a strongly worded statement about the need for an offi-
cial inquiry into the figure. Even Irish Stockbrokers,
well-schooled in the arts of selling anything a Bloomb-
erg terminal throws at them under the ‘Irish economy’
heading, had to admit that the CSO statistic a
chimera.
Quite hilariously, one Irish Stockbrokerage analyst
told Bloomberg that the whole problem was, of course,
down to the Eurostat methodology for measuring GDP
that “Clearly, …is not fit for purpose as an indicator of
economic growth in an economy like Ireland”. He did not
mention that the Eurostat approach doesn’t work here
precisely because corporate tax arbitrage underpins the
Irish economy.
But the “leprechaun economics” would have been
merely embarrassing were it not a herald of worse news
yet to befall Ireland.
Contrary to the wishes of our establishment, the CSO
release pushed the Irish corporate tax system straight
back into the global headlights. Most of it focused on
Ireland being the world’s favourite location for corporate
tax inversions - a dubious distinction that makes us hot
in the US as a lightning rod for all Presidential candi-
dates and a score of zealous legislators. It also shoved
Ireland to the front of a number of political debates
raging across Europe, where entrenched establishment
politicians are desperately seeking a foreign scapegoat
to blame for domestic trends that fuel the rise of the
populist left and right.
Based on data compiled by the US Congressional
Research Service and published in April of this year in
one of its reports, Ireland now leads the Cayman Islands
and Bahamas at the top of world league tables for inver-
sions by US corporations. That, despite the Irish
authorities repeatedly claiming that the Government
here has been closing tax loopholes since Budget 2014.
This fact is not even referenced in the US Congressional
office report. Nor has it been figuring in academic stud-
ies. The Rutgers Business Review 2016 paper published
in August surveys aggressive tax avoidance practices
by US and other Multinational corporations. It reserves
an honourable place for Ireland as one of the world’s
leading tax-optimisation locations, without citing any of
the recent tax reforms passed by the Government.
Then, on August 29th, the EU Competition Commis-
sioner, Margrethe Vestager, who is an outspoken
opponent of tax arrangements which amount to hidden
state aid, delivered another blow to Official Ireland
when she produced her long-awaited report on Apple’s
tax affairs here. The report had been anticipated. And it
was also heavily lobbied by the Government through
media and diplomatic channels. An extraordinary spin
was bought by the media – that the back tax was only a
couple of hundred million euro, that it could only be
used to pay down the national debt. The media was
utterly suckered. In the end, Vestager found that Apple
paid vastly less tax in Ireland than the ‘headline 12.5
percent rate would imply – some €13bn less. Summon-
ing Cowenesque opaqueness, Ireland’s Finance Minister
has already managed to signal that he doesn’t accept
the ruling: the Government will appeal the Commission
decision to the European Court of Justice.
Appeal or not, the damage is now done. Ireland’s
entire Multinational-based model of economic develop-
ment has been exposed as a zero-sum game in which
our neighbours and trading partners surrender their tax
revenues to us. It is futile to paint the case as the Big
Bad EU against Good Little Ireland, for the case is not
2 6 September 2016
based on a challenge to the Irish 12.5 percent corpora-
tion tax regime, but on the sharp practices within this
regime that allow companies to book effective tax rates
some ten times lower than the stated headline rate.
Yet for all the media and foreign outrage, the fact that
this model of development is no longer working is still
escaping our policymakers.
The economic figures presented by the State to sup-
port the FDI-focused Multinationals are impressive. On
paper, some one fifth of the Irish workforce is employed
by a Multinational of sorts, though some sources put it
at a more modest and more realistic one tenth. Alleg-
edly, these workers earn around €6bn in annual wages.
Although no one can point to any serious official or reli-
able time series data to verify these claims.
Multinationals also, allegedly, spend around €4bn on
annual purchases of goods and services here in Ireland,
though again this is not verifiable through any sources
other than those produced by the vested interests. Even
if we attempt to control for double counting with some
these figures, the benefits to the Irish economy in tan-
gible terms of cash staying on the ground in Ireland from
these companies’ operations elsewhere around the
world run close to €10bn. And, unlike a range of Irish
indigenous sectors, the Multinationals do not rely on
direct subsidies from the EU or Dublin. So their gross
value added in the economy is closer to the net value
created.
But headline figures do not show other features of our
high dependency economy. High wages earned in Mul-
tinationals sectors come at the expense of higher costs
that have to be carried by indigenous companies oper-
ating in the sectors that are in direct competition with
Multinationals for talent. And some of the wages earned
in Ireland-based Multinationals are remitted abroad by
foreigners imported by these Multinationals. Moreover
the figure of “one in five” Irish workers being employed
by the Multinationals is also false as it includes scores
of foreign workers brought into Ireland for temporary
employment in foreign companies. Many of these have
tangible connections to the economy here only through
rents and the price of restaurants.
It is easy to be cynical about many of the economic
claims made nowadays in Dublin, but worse are bom-
bastic claims from our political establishment. After all,
they did spectacularly blow their credibility with July
GDP figures.
So it’s Irish Government 0: International Tax Politics
2. And a penalty has just been awarded against us.
In fact, over the last 20 years or so, the Irish economy
has become severely skewed in favour of capital: physi-
cal capital via REITs, vulture funds, Nama and the rest
gaining dominance over the property and development
sectors; intellectual capital, via state-sponsored tax
schemes such as the already infamous ‘Knowledge
Development Box’; and foreign financial capital, via a
host of lobbying, tax and regulatory schemes that sus-
tain the likes of the IFSC.
The losers in this game are labour and human capital
- both of which are afforded distant secondary status in
the power hierarchies of Irish economic policies and in
our tax policies. As a result, the wage share of Irish GDP
has declined in importance over the years, just as the
wage share in Irish taxes has risen. (Chart) 1999-2007,
compensation of employees accounted for 38.5 percent
(on average) of Irish GDP. In 2015, the year of miraculous
Multinational-driven growth, the share fell to just over
30.6 percent – the lowest on record.
The Irish establishment deserves the bruising it
received in recent months for pushing the system of tax
optimisation beyond what reason and prudence in inter-
national trade and investment diplomacy requires
today. The problem here is not our benign and competi-
tive 12.5 percent headline tax rate, but the Byzantine
system of tax loopholes created around it by the vested
interests and charlatan politicians relying on foreign
investment to cover up domestic policy failures. Blam-
ing Brussels for the unpalatable realities of our
corporatist economy is an escapism we increasingly
cannot afford.
NEWS
Compensation of Employees as Share of GDP Contribution by Sector
Annual Averages, Percent
0
12.5
25
37.5
50
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Financial corporations
Non-financial corporations
Total economy
The losers in this
game are labour
and human
capital which are
afforded distand
secondary
status in our
tax policies
