Category Archives: G20

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.