Economist claims tax rate data flawed

The data used to support the claim that US multinationals operating in Ireland pay an effective tax rate of 2.2% is flawed, according to a leading economist.

In a research paper released by Trinity College Dublin academic Jim Stewart, data from the US Bureau of Economic Analysis was used to show that US multinationals paid an effective tax rate of 2.2% on the $144bn of net income earned in this country.

However, UCC economics lecturer Séamus Coffey argued that the $144bn figure is not correct.

“There is nothing close to $144bn of US multinational corporations profits in Ireland. Such massive profit figures do not appear in the statistics produced by either the CSO or the Revenue Commissioners. The gap between GDP and GNP is large, but it is not that large,” he said.

“For 2011, the Revenue Commissioners report that the gross profits of all companies in Ireland was €74bn. After capital allowances, losses carried forward, trade charges and other adjustments net taxable income was €40bn.”

He argued that the Bureau of Economic Analysis includes revenue from companies that are incorporated in Ireland but do not have any operations in this country. A case in point is the US multinational, Apple, which was the subject of US Senate hearings last June into the management of its tax affairs.

One of its companies that came under scrutiny was Apple Sales International, which had pre-tax earnings of $12bn in 2010. This company is incorporated in Ireland, but has no physical operations here.

However, using Bureau of Economic Analysis methodology, the $12bn would be included in the $144bn attributed to income earned in Ireland.

Moreover, companies incorporated by Google in Ireland used in a complex tax avoidance scheme known as the ‘double Irish’ also skew the Bureau of Economic Analysis figures.

“Much of it flows to small island nations like Bermuda and the Cayman Islands. Google books massive advertising sales revenues in Ireland, but the profit is attributed to intellectual property that is held in Bermuda.

The holding company, Google Ireland Holdings, is Irish incorporated but the royalty payments made to it are outflows in the Balance of Payments and the profit is not taxable in Ireland,” said Mr Coffey.

On RTE’s Morning Ireland yesterday, PwC tax partner, Feargal O’Rourke, said there was “a hole the size of the Grand Canyon” in Mr Stewart’s research paper and the conclusion.

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