Jan 08 2014

If Ireland is not a tax haven, what is it? A bagel?

Posted by: Nicholas Shaxson in: Thoughts

Ireland continues to annoy me. Not Ireland the country, of course: it’s just the tax haven industry that has grown up there. It annoys me because there are so many influential voices there that deny Ireland is a tax haven. All tax havens deny being tax havens, but Ireland seems to have taken it to extremes of huffing and puffing: a veritable industry of tax haven deniers has grown up there. I guess it is the sheer scale of the dishonesty that riles me.

All this exactly fits a pattern I describe in Treasure Islands:

“Skittish financiers dislike places that are chaotically corrupt, as do onshore regulators. Secrecy jurisdictions steeped in sleaze confront this by putting on a strenuous performance of rectitude, a theatre of probity that involves repeatingly projecting the essential message – ‘We are a clean, well-regulated, transparent and cooperative jurisdiction’ – burnished by carefully selected comments and praise from toothless offshore watchdogs.”

Now I’ve just spotted an article from Marty Sullivan, a rock star in the world of U.S. tax experts (alongside Lee Sheppard), entitled If Ireland Is Not A Tax Haven, What Is It? It’s from 2013, but perfectly valid today. It begins:

“It would be hard to overstate the importance of reputation in international tax. Cross-border tax planning involves extremely arcane and technical rules that only brainy experts can understand. But the opinion of regular people matters, too. If, as in the United Kingdom, the general public perceives that corporations are abusing tax rules, then democratically elected governments may have to stop pandering to footloose multinational businesses and start cracking down on them. And as much as corporate CEOs fear reporting lower after-tax profits to Wall Street, they fear even more that their company’s name will appear in a Wall Street Journal article implying that they’re not paying their fair share.

That theatre of probity. Sullivan continues:

No jurisdiction, except perhaps Bermuda, has more at stake per capita in the international tax game than Ireland. Again, reputation is central. Corporate boards and CEOs don’t want their prestigious brands smeared by association. They cannot have their regional headquarters located in a jurisdiction that–whether fairly or unfairly–has obtained a reputation for less-than-aboveboard business dealings. The label “tax haven” implies sunny beaches and shady business. If Ireland wants to continue to attract investment by the world’s most respected companies, it desperately needs to avoid the tax haven label. It must also avoid incurring the wrath of the citizenry of the European Union, who want Ireland to stop using low-tax rates to steal jobs and investment from their countries.”

And then he nails the performance of rectitude very nicely:

“Irish politicians, business leaders, and newspapers are ardent defenders of the country’s corporate tax regime. And any hint that you think Ireland is a tax haven will set off a storm of protest. They point out that Ireland does not meet the OECD’s definition of tax haven. Well, that’s a low standard if there ever was one.”

Look back at that paragraph from Treasure Islands, and see how close that is to the above paragraph. Not only that, but look how close this is to the ‘captured state’ phenomenon I describe in the ‘Ratchet’ chapter of Treasure Islands, or in my more recent work on the Finance Curse. And there are some remarkable further insights and research into the theatre of probity, from the horse’s mouth, here. And if you want to know how Ireland became a tax haven, read this sorry tale.

Sullivan’s article goes on at some length explaining why Ireland is a tax haven, and I could basically paste it all up here: but go off and read it. It’s fairly easy to understand. He finishes:

We all understand perfectly well why the Irish will never accept their country being called a tax haven. But if we cannot use that label we must have a term for a country whose extremely generous tax rules allow it to attract enormous amounts of foreign capital. Hmmm, if not a tax haven, let’s just say Ireland is a bagel.

Or perhaps merely a big jam doughnut.

13 comments so far

La Chupacabra 1th January, 2014 1.29 am

Nick –

The problem is as always that your definition of a ‘tax haven’ is basically ‘any country with a tax regime I do not like’.

Ireland is not a secrecy jurisdiction, and all tax policies it adopts are perfectly within the letter and the spirit of its international commitments. Its only ‘sin’ is to offer very low rates of corporate taxation to attract foreign investments. If other EU member countries do not like it, tough luck: EU treaties very specifically define taxation as an area of unlimited sovereign responsibility for member states, and there has never been any binding agreement (only fluff talk) among member states regarding harmonized tax policies.

By the way, your quote that “EU citizens … want Ireland to stop using low-tax rates to steal jobs and investment from their countries” confirms that in an environment where capital can move freely between tax jurisdictions, the incidence of corporation tax falls heavily on labor.

You saw the light after all. Happy new year.

Nicholas Shaxson 1th January, 2014 9.14 am

happy new year too. Which part of Sullivan’s article did not make sense to you? And no, the incidence argument remains completely unpersuasive, as my next post will remind people.

La Chupacabra 1th January, 2014 2.15 pm

The very premise of the article, ‘Ireland is a tax haven’ is wrong. Whichever definition of a tax haven you and your fellow tax justiciers have ever come up with. Ireland has a low and business-friendly tax regime and you don’t like that. That is fair enough but there is absolute nothing in written or unwritten international rules that would prevent it from pursuing the tax policies it chooses.

Regarding the incidence argument, you may want to read the articles you post: if low-tax country A (Ireland) attracts investments and jobs from high-tax country B (say France or the UK), then by definition country B’s workers are bearing the incidence on their country’s high-tax regime in the form of higher unemployment or lower wages.

I will read your other post regarding tax and growth, although from a first look it has nothing to do with incidence. Furthermore it still relies on the same spurious statistical work and biased sample selection that we discussed many times before.

Nicholas Shaxson 1th January, 2014 3.07 pm

maybe do some reading to get up to speed on Ireland and its application of transfer pricing rules. there may be nothing in the international rules to stop ireland perpetrating abuses. I’m not sure: I haven’t studied it. but that says nothing whatsoever about the abusive regime that ireland has in place. and regarding incidence, the gap between the rhetoric (if you cut taxes all the investors will come flooding in) and the reality (cut taxes and the result is almost always the same: existing investors will snaffle it up, with almost no other effects) is big enough to cruise an ocean liner through. It is really simple to understand.

La Chupacabra 1th January, 2014 4.30 pm

Nick –

Regarding transfer pricing rules, there are no ‘international rules’. Tax is dealt solely on the basis of bilateral treaties between sovereign nations. Do not even try to bring the EU into this; it has no authority over taxation matters.

Regarding incidence, you quoted/endorsed an article that explicitly states that Ireland’s low-tax policies lead to job losses in higher-tax countries by attracting or diverting investments.

Then you argue that this is in fact not the case.

Would it be to ask from you to make up your mind?

Nicholas Shaxson 1th January, 2014 5.01 pm

howler. ireland’s policies suck tax revenues out from other countries. that’s different from sucking real investment out.

La Chupacabra 1th January, 2014 12.20 am

But Nick, you have just written (paraphrasing) that “in the real world, nothing happens”, etc… when taxes are cut: investments keep coming in, people are employed. taxes are paid.

So I am really struggling to understand how, since variations in taxes have no impact on investment decisions, Ireland’s low-tax policies can have any impact on the tax revenues of high-tax locations?

You cannot have it both ways: either (i) taxes have an impact on investment decisions and therefore employment and tax revenues, or (ii) taxes have no impact on either.

Time to make up your mind.

Nicholas Shaxson 1st January, 2014 1.22 pm

No, a) Ireland’s growth was the fruit of many things, and tax was less important than its membership of the EU, its English language and strategic transatlantic position, and massive EU subventions. Let’s not forget the role of wild west financial regulation, puffing up the financial sector and making fortunes for a few, at the expense of a serious finance curse.
b) Ireland is in the ‘tax haven’ category, as mentioned – not applicable as a generalised rule. after all, the world’s countries can’t all make a living by picking each others’ pockets, now, can they?
c) Who, today, would really hold Ireland up as the ‘miracle’ that it’s supposed to be according to the anti-tax fanatics? I mean take this, just for example, separating out the hyperventilation from the hard facts

[…] Call Ireland a tax haven, and set off storms of protest […]

[…] offered lower than publicised rates to multinationals. There is, according to Nicholas Shaxson, a “a veritable industry of tax haven deniers” in Ireland. The latest salvo has come in a technical paper from the Department of Finance which […]

[…] – “We are not a tax haven” denial of the year […]

[…] Ireland’s policy of trying to be a tax haven started in 1956, long before other European countries got into the game. Yet from the 1960s all the way to the 1990s, Ireland’s GNP per capita stubbornly stuck at just 60-65 percent of the EU average, even as Spain, Greece and Portugal saw theirs rise sharply. (And yes, Virginia, Ireland most certainly, absolutely is a tax haven.) […]

[…] designing Ireland’s tax policies and are key players in the spin machine that protects the Ireland tax haven. And most of Ireland’s media and political class seems to have drunk the […]

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