Category Archives: OECD

9/2/20: Ireland: More of a [reformed] Tax Haven than Ever Before?..

With the demise of the last Government and the uncertain waters of Irish politics stirred by the latest election results, let me take a quick glance at the Government's tenure in terms of perhaps the most important international trend that truly threatens to shake the core foundations of the Irish economy: the global drive to severely restrict corporate tax havens.

In Ireland, thanks to the CSO's hard labours, there is an explicit measure of the role played by the international tax avoiding corporations in the country economy. It is a very imperfect measure, in so far as it significantly underestimates the true extent of the tax arbitrage that Ireland is facilitating. But it is a robust measure, nonetheless, because it accounts for the lore egregious schemes run in capital investment segments of the corporate tax strategies.

The measure is the gap between the official Irish GDP and the CSO-computed modified Gross National Income, or GNI*. The larger the gap, the greater is the role of the tax shifting multinationals in the Irish national accounts. The larger the gap, the more bogus is the GDP as a measure of the true economic activity in Ireland. The larger the gap, the poorer is Ireland in real economic terms as opposed to the internationally-used GDP terms. You get the notion.

So here are some numbers, using CSO data:

When Fine Gael came to power in 2011, Irish GNI* (the more real measure of the economy) was 26.03 percent lower than the Irish GDP, in nominal terms. This, effectively, meant that tax shenanigans of the multinational corporations were de facto running at at least 26% of the total Irish economic activity.

Fine Gael proceeded to unleash and/or promise major tax reforms aimed at reducing these activities that (as 2014 Budget, released in October 2013 claimed, were harmful to Ireland's reputation internationally. The Government 'closed' the most notorious tax avoidance scheme, the Double Irish, in 2014, and introduced a major new 'innovation', known as the Knowledge Development Box (aka, replacement for the egregious Double Irish) in 2016. In September 2018, the Government published an ambitious Roadmap on Corporation Tax Reform (an aspirational document aiming to appease US and European critics of Ireland's tax avoidance platform).

So one would expect that the gap between Irish GNI* and GDP should fall in size, as Ireland was cautiously being brought into the 21st century by the FG government. Well, by the time the clocks chimed the end of 2018, Irish GNI* was 39.06 percent below the Irish GDP. The gap did not close, but instead blew up.

Over the tenure of FG in office, the gap rose more than 50 percent! Based on 2018 data (the latest we have so far), for every EUR1 in GDP that Irish national accounts claim to be our officially-declared income, whooping EUR0.391 is a mis-statement that only exists in the imaginary world of fake corporate accounts, engineered to squirrel that money from other countries tax authorities. Remember the caveat - this is an underestimate of the true extent of corporate tax shifting that flows through Ireland. But you have an idea. In 2011, the number was EUR0.260, in 2007, on the cusp of the Celtic Garfield's Demise, it was EUR0.1605 and in 2000-2003, the years of the Celtic Garfield's birth when Charlie McCreevy hiked public expenditure by a whooping 48 percent, it was averaging EUR0.1509.

Think about this, folks: McCreevy never waged a battle to get Irish tax system's reputation up in the eyes of the critically-minded foreigners and yet, his tenure's end was associated with the tax optimisation intensity in the Irish economy being whooping 24 percentage points below that of the 'reformist' Fine Gael.

This is mind-bending.

9/9/19: Ireland and OECD: Income Tax Rates Comparatives

Based on the OECD data for 2018, Ireland is the second worst OECD country to earn income from work at the upper margin of earnings (167% of the average annual gross wage earnings of adult, full-time manual and non manual workers in the industry), compared to lower earners (67% of the average wage earnings). And although this story is not new (we were in the same position back in 2014), the gap in effective marginal taxes charged on the higher earners relative to lower earners is getting worse.

Here is the chart for 2014 data:

And a comparative 2018 data:

Back in 2014, nine of the OECD countries had zero or negative upper marginal tax rate penalty on higher wage earners. In 2018, the number rose to ten. In 2014, seven countries, including Ireland, had a tax rate penalty on higher wage earners in excess of 10 percentage points. In 2018, that number rose to eight. Ireland ranked second in terms of tax penalty on higher labour income tax burden relative to lower income in both 2014 and 2018. In 2014, our relative penalty stood at 18.961 percentage points, 2.753 percentage points below Sweden. In 2018, our relative penalty was 20.974 percent, 3.04 percentage points below Sweden. The OECD average penalty was 5.31 percentage points in 2018, down from 5.57 percentage points in 2014.

It is worth noting that in Ireland, voluntary spending on healthcare (indirect tax) is roughly 50 percent higher than it is in Sweden ( Ireland spends less than half what Sweden does on early childhood education per pupil, and about 60 percent of what Sweden spends on tertiary education per pupil ( In other words, higher taxes on higher earners in Sweden seem to be purchasing substantially more services for taxpayers than they do in Ireland. Sweden also has older demographics and a somewhat functional military. Ireland has younger (lower health spending) demographics and not much in terms of a military expenditure. Of course, Swedish parliamentarians earned EUR 6,269 per month salary in 2918, when their Irish counterparts were paid EUR 7,878, but that hardly explains the gaps in spending and taxation systems.

So where all this tax penalty or surcharge on the higher earners levied on Irish residents is being spent? Clearly not on better financed education or health services, and not on military.

Another interesting way of looking at the figures is by comparing the actual tax rates. For those on 67% of average labour income, Ireland's rate of taxation in 2014 was 37.7 percent or 3.92 percentage points below the OECD average,. This fell in Ireland to 35.72 percent in 2018, while the gap with OECD average rose to 6.29 percentage points. If you consider OECD average to be a realistic metric for tax burden on lower earners, Irish lower earners were more substantially undertaxed in 2018 than they were in 2014. For higher earners, disregarding the fact that Irish upper marginal tax rates kick in at an absurdly low level, for wage earners of 167% of the average wage, Irish tax rates were 56.66% and 56.70 percent in 2014 and 2018, respectively. This means that in 2014, Irish higher earners tax rates were 9.34 percentage points above the OECD average and in 2018 these were 9.38 percentage points above the OECD average. In both cases, higher earners were taxed more severely in Ireland when compared to the OECD average. The matters are similar if we were to run a comparative between Ireland and OECD median tax rates, so there is no point of arguing that OECD data includes 'outlier' countries.

On a personal note, I do not think comparatives between Sweden and Ireland paint the latter in any better terms than the former. However, if one were to look at the OECD figures as some objective measures of tax burdens, Irish lower and higher earners (labour income) are overtaxed by the OECD 'norms' (average and median). When one takes into the account a relatively scarce supply of services to the taxpayers as well as a relatively higher out-of-pocket costs of the services supplied, things appear to be even worse. This is not a value judgement. It simply down to the plain numbers.

5/1/16: What Aggregate R&D Spends Tell Us? Actually… little

In a recent comment on R&D Expenditure across the OECD countries, WEF has referenced Irish data on R&D spending as % of GDP at 1.58% which refers to 2012 full year results.

Which is surprising, given that we now have 2014 data available per Eurostat ( which puts our R&D spending at 1.55% of GDP in 2014.

Irish GDP in 2014 in current prices terms was 16.07% above Irish GNP. The same gap in 2004 was 17.26%. Which means that adjusting for this gap, Irish R&D expenditure as a share of GNP was 1.38% of GNP in 2004, rising to 1.80% in 2014.

Thus, in 2004, Ireland ranked as 12th country in the EU in terms of R&D expenditure ‘intensity’ by GDP metric, and 11th by GNP metric, both metrics were at exactly the same ranking places in 2014.

Here is a chart showing longer evolution of the R&D expenditure series from OECD:

Overall, Irish R&D expenditures remain below the desired levels in absolute terms, both relative to the GDP and the GNP bases.

Eurostar provides a handy breakdown of R&D spending by origin across Private sector, Government sector, Higher education and non-Profit.

Few things stand out for Ireland:

  • As a share of R&D spending, business enterprise sector appears to be carrying its weight in Ireland. 
  • Government expenditure on R&D is extremely weak in Ireland, though one has to wonder what on earth can Irish Government research, given the quality of our state institutions.
  • Higher education sector R&D spending in Ireland is ranked 20th in the EU - a ranking that is heavily influenced by a massive share of business enterprise spending of total R&D expenditure. 
  • Apparently, there is no private non-profit spending whatsoever in Ireland.

Key to the above is, however, the nature of business enterprise spending. Per Government own statistics, in 2012, roughly 300 firms accounted for almost 70% of total R&D expenditure in Ireland. Just 107foreign firms spent more than EUR2 million on R&D per annum in Ireland and these account for 88% of the total R&D spent by MNCs in Ireland, or well over 70% of the total business enterprise R&D spend.

Here’s Finfacts take on the hype:

In other words, stripping out MNCs with their R&D activity booked through Ireland mostly reflective of tax optimisation rather than actual research, one wonders just how much exactly does R&D contribute to our GDP or GNP and just how much of the failures of Irish R&D spending are down to quantum of spend as opposed to quality of spend? Problem is: we do not know. All Government research on the matter, including research by the likes of the OECD (based on Irish Government-supplied data), is probably heavily biased by the insiders dominating analysis.

Take the following two charts from OECD latest report on Science and R&D (

So in the first chart, Ireland is above EU and OECD averages in terms of researchers employment intensity, but in second chart, Ireland is below EU and OECD averages in terms of R&D output intensity (by one metric).

Which begs a question - is this difference down to quality of researchers or down to type of research (e,g. non-patentable fields of sciences and humanities) or down to classification by, say MNCs, of some business & admin personnel as research personnel for tax purposes and to create a smokescreen of ‘organic’ as opposed to tax channeling activity in Ireland?

Who knows… But in 2011, per OECD data, 71.1% of total R&D expenditure by enterprises in Ireland accrued to foreign affiliates (the MNCs).  Subsequently, we stopped reporting such data. It is worth noting that this does not include companies that redomiciled into Ireland via tax inversions, adding which to the pile would probably shift this number closer to 90 percent.

In simple terms, aggregate spending figures tell us very little as to the nature of Irish R&D activities or their effectiveness. The real data is being hidden from our view by commercial secrecy that conveniently obscures just what exactly is happening in the economy and in our research sectors. May be, the knowledge economy of Ireland is a de facto a convenient deus ex machina for the severe skews in the economy arising from the MNCs presence here. Or may be, it is all just fine and a crop of Nobel Prizes and research accolades for the country are only a matter of few more quid pushed into R&D line of private and public expenditure.

20/11/15: The Inversion Debate Isn’t Over: Credit Suisse

A brief Credit Suisse note on corporate inversions, with an honourable mentioning for Ireland: over the story covered on this blog earlier (see background here including further links).

I especially like that little twist on tax optimisation that are inter-company loans: whilst the original inversion leads to a direct negative impact on tax revenues for our trading and investment partners, it adds a cherry on the proverbial cake by reducing companies' tax liabilities even further through lending to U.S.-based business.

OECD compliant, it all is...