Category Archives: Tax haven

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.

15/12/19: Under the Hood of Irish National Accounts: 3Q 2019 Data

CSO have released the latest (3Q 2019) data for the National Accounts. The headlines are covered in the release here: and are worth checking. There was a massive q/q increase in GNP (+8.9%) and a strong rise in GDP (+1.7%).

Official value added q/q growth figures were quite impressive too:

  • Financial & Insurance Activities value added was +5.7 percent in volume, all of which, judging by the state of the Irish banks came probably from the IFSC and insurance premiums hikes
  • Professional, Administrative & Support Services +5.1 percent (this sector is now heavily dominated by the multinationals)
  • Public Administration, Education and Health sector lagged with a +1.5 percent 
  • Arts & Entertainment +1.8 percent
  • Construction grew by much more modest +1.3 percent 
  • Industry (ex-Construction) fared worse at +1.1 percent 
  • Information & Communication increased by 0.8 percent over the same period
  • Meanwhile, more domestic-focused Agriculture recorded a decline of 3.2 percent 
  • Distribution, Transport, Hotels & Restaurants posted a decline of 1.0 percent.
On the expenditure side of accounts:
  • Personal Consumption Expenditure increased by 0.9 percent q/q
  • Government expenditure increased 1.2 percent.
Not exactly the gap we want to see, especially during the expansionary cycle, but public consumption has been running below private consumption in level terms ever since the onset of the recovery.

With this in mind, here is what is not discussed in-depth in the CSO release. CSO reports a measure of economic activity that attempts to strip out some (but not all) of the more egregious effects of the tax optimising multinational enterprises' on our national accounts. The official name for it is 'Modified Domestic Demand', "an indicator of domestic demand that excludes the impact of trade in aircraft by aircraft leasing companies and trade in R&D service imports of intellectual property". Alas, the figures do include intangibles inflows, especially IP on-shoring, income from domiciled intangible assets, and transfer pricing activities. Appreciating CSO's difficulties, it is virtually impossible to make a judgement as to what of these three components is real (in so far as it may be actually physically material to Irish enterprises and MNCs trading from here) and what relates to pure tax optimisation.

With liberty not permitted to CSO, let's take the two categories out of the aggregate modified demand figures.

So, this good news first: Modified Total Domestic Demand is growing and this growth (y/y) is improving since hitting the recovery period low in 3Q 2018. 

Bad news: growth in modified domestic demand remains extremely volatile - a feature of the Irish economy since mid-2014 when the first big splashes of the Leprechaun Economics started manifesting themselves (also see last chart below).

Not great news, again, is that domestic growth is not associated with increases in investment (first chart above, blue line). 

More good news: in levels terms, adjusting for inflation, Ireland's Modified Domestic Demand has been running well-above pre-crisis period peak average levels for quite some time (chart below). Even better news, it appears that much of the recent support for growth in demand has been genuinely domestic.

Next chart shows y/y growth rates in the headline Modified Total Domestic Demand as reported by the CSO (blue line) and the same, less transfer pricing, stocks flows and IP flows (grey line). 

Starting with mid-2014, there is a massive variation in growth rates between the domestic economy growth rates as reported by the CSO and the same, adjusting for MNCs-dominated IP and transfer pricing flows, as well as one-off effects of changes in stocks (inventories). There is also tremendous volatility in the MNCs-led activities overall. Historically, standard deviation in the y/y growth rates in official modified domestic demand is 5.68, and for the period from 3Q 2014 this is running at 5.09. For modified demand ex-transfer pricing, IP and stocks flows, the same numbers are 6.12 and 1.62. 

Overall, growth data for Ireland has been quite misleading in terms of capturing the actual tangible activities on the ground in prior years. But since mid-2014, we have entered an entirely new dimension of accounting shenanigans by the multinationals. Much of this is driven by two factors:
  1. Changes in tax optimisation strategies driven by the international reforms to taxation regimes and the resulting push by the Irish authorities to alter the more egregious loopholes of the past by replacing them with new (IP-related and intangible capital-favouring) regime; and
  2. Changes in the ays in which MNCs prioritise specific investment inflows into Ireland, namely the drive by the MNCs to artificially or superficially increase tangible footprint in the Irish economy (investment in buildings, facilities and on-shored employment) to provide cover for more tax-driven FDI.
Time will tell if these changes will lead to more or less actual growth in the real economy, but it is notable that the likes of the IMF have recently focused their efforts at detecting tax optimising activities at national levels away from income flows (OECD approach to tax reforms) to FDI stocks and firm-level capital activities. By these (IMF's) metrics, Ireland has now been formally identified as a corporate tax haven. How soon before the OECD notices?..

29/7/16: Tax Regime, Apple, Fraud?

We have finally arrived: a Nobel Prize winner, former Chief Economist and Senior Vice-President of the World Bank (1997-2000) on Bloomberg, calling Apple's use of the Irish Tax Regime 'a fraud':

This gotta be doing marvels to our reputation as a place for doing business and for trading into Europe and the U.S.

The same as Facebook's newest troubles:

But do remember, officially, Ireland is not a tax haven, nor is there, officially, anything questionable going on anywhere here. Just 26.3 percent growth in GDP per annum, and booming corporate tax revenues that the Minister for Finance can't explain.

10/4/16: The Real ‘Panamas’ Of Tax Havens… Are Not In Central America

The story of the Panama Papers leak has brought, on a 3.6 terabyte scale, the issue of money laundering and tax evasion back to the forefront of the mainstream media. However, quietly, and unnoticed by the majority of the punters, tax optimisation and tax evasion have been moving closer and closer to the homesteads of the Governments so keen on reducing it elsewhere, beyond their own borders.

Here are just a couple of links worth checking out on the matter:

  1. The role of Nevada (yes, one of the U.S. states) as an emerging tax haven of choice:
  2. The role of the UK (yes, another - alongside the U.S. - leader in BEPS process and the driver of the G20 push to close down ‘other nations’’ tax havens) :

Of course, the shocker no one wants to highlight when it comes to Panama Papers is that Panama became a tax haven conduit for the world on foot of U.S.-approved and / or U.S.-tolerated policies choices that stretch decades after decades after decades.

Panama’s first dappling with tax haven status was in 1927, when the country accommodated first registrations of foreign ships in a move designed to shield Rockefeller's Standard Oil from U.S. taxmen. The law allowed foreign owners to set up tax-free, anonymous corporations with little disclosures, including no requirement to disclose beneficial owners.

By 1948, the country set up its first ‘free trade zones’. One of these - the Colon FTZ - became the largest free trade zone (or tax free zone) in all of the Americas, a hit spot for trading for narcos and black marketeers.

By 1980s, Panama was saturated with offshore accounts schemes and by 1980s these started to attract large volumes of drug money. By the late 1990s, the former were pushed deeper into secrecy and the top trade became politicians, wealthy individual investors and others.

A good summary of Panama's tax haven history is available here:

The U.S. always knew this. And the U.S. knew this when in penned and subsequently implemented the 2011 Free Trade Agreement (with both Presidents George W. Bush and Barak Obama being behind that pearl of ‘free trade’ wisdom). One side of the coin was that FTA required Panama to enter into a separate tax information exchange treaty with the U.S., on the surface, implying improved transparency. But behind the scenes, Panama gained effectively an ‘all-clear’ sign from the U.S., making the country officially ‘compliant’. This meant that Panama could operate even more brazenly in the global markets, as long as it satisfied minimal U.S. requirements on disclosures.

Worse, until February 2016, the Financial Action Task Force (FATF), an international body responsible for setting and monitoring anti-money laundering rules, had Panama on its "blacklist" of non-compliant countries. Something the U.S. knew too. It was removed from the list because the Government passed some new laws designed to curb inflows of outright criminal funds into its financial system

In February 2014, the IMF carried out review of Panama’s regulatory and enforcement regimes relating to FATF regulations. Here is the first line conclusion from the IMF: “Panama is vulnerable to money laundering (ML) from a number of sources including drug trafficking and other predicate crimes committed abroad such as fraud, financial and tax crimes” (see full report here:

When it comes to money laundering (ML), the IMF states that “According to the [Panamanian] authorities, the largest source of ML is drug trafficking. Other significant but less important predicate offenses and sources of ML are cited to include: arms trafficking, financial crimes, human trafficking, kidnapping, corruption of public officials and illicit enrichment. With respect to predicate crimes committed outside of Panama, the authorities indicate that these would include activities related to financial crimes, tax crimes (tax evasion is not a predicate crime for ML in Panama) and fraud. These foreign offenses are likely to be linked with Panama’s position as an offshore jurisdiction. It is believed that ML related to these crimes is conducted electronically through the use of computers and the internet using new banking instruments and systems both in Panama and internationally. The authorities indicated that the diversity of foreign predicate crimes has been increasing in recent times.”

Overall, Panama laws still do not cover, even under the U.S. ‘enhanced transparency’ regime actions of lawyers, accountants, insurance companies, notaries, real estate agents or brokers dealing in precious metals and stones.

This all is now coming as a shocker for the U.S. and UK and European authorities in the wake of the Panama Papers leak? Give me a break!

The co-founder of Mossack Fonseca, Ramon Fonseca, recently accused the BEPS-leading countries, the U.S. and UK of hypocrisy. "I assure you there is more dirty money in New York, Miami and London than there is in Panama," he told the New York Times (see: And just in case you wonder, here are top 30 countries in terms of financial secrecy laws:

Yep. USA - Number 3... and so on...