Dual tax system benefits the big players

Ireland operates two very different tax systems, one for corporate multinationals and a second for smaller companies and individuals, according to Trinity finance professor, Jim Stewart.

Dual tax system benefits the big players

Mr Stewart said that foreign multinationals, such as Google, in Ireland operate in what he called a negotiated tax environment where the Revenue Commissioners will tailor the tax regime to suit the needs of the company.

“What I mean is multi-nationals operate in a negotiated tax environment, if they have an issue with the tax code, the tax code is changed,” he said.

The most stark example of the difference between the tax environment for foreign multinationals and domestic small and medium companies is the treatment of the ‘garlic man,’ Paul Begley.

Mr Begley was sentenced to six years for avoiding €1.6m in Vat on garlic. The sentence has since been reduced to two years.

“Garlic man gets sent to jail but Google man gets taken for lunch. If Google wanted to bring in garlic, let’s say because it begins with G, the Revenue would change the Vat rates on garlic,” said Prof Stewart.

It has been reported that last year Revenue Commissioner did tailor the tax regime to Google’s advantage. Revenue agreed to let Google make billions of dollars in royalty payments directly to a Bermuda subsidiary, helping to cut the company’s tax bill by at least $2bn a year, according to US and overseas securities filings. Previously, Google had routed those payments through a shell company in the Netherlands to avoid a 20% Irish withholding tax on payments destined for island havens. According to Bloomberg, Ireland agreed to accept an additional tax well below 20% in exchange for the favourable treatment.

A spokesperson for the Revenue Commissioners said that the arrangement had been made to reduce the administrative burden on Revenue.

“This is permitted only where payments are made to non-residents with no liability to Irish tax in respect of those payments and any tax withheld would be fully refundable ie. the ongoing withholding and subsequent repayment of such tax would involve additional administrative costs for both taxpayers and Revenue.”

Prof Stewart said that whatever the benefit to the Revenue may have been it was definitely not in the form of a higher tax take from Google.

“They showed €9.9m due to the Irish Revenue. Four years ago it was pretty much the same, since then, very little has changed. They said that there was a potential gain, but so far there is none. Maybe there is a gain in some other way.”

The fact, according to Prof Stewart, is that Ireland markets itself as being a friendly tax regime allowing companies to ‘bi-locate’: this allows companies be resident here and tax resident in Bermuda or another tax haven.

The biggest threat to this regime are developments in France and Britain where the authorities are seeking to repatriate the profits that companies. This could have drastic consequences for the Silicon Docklands in Dublin where Google, Facebook and Linkedin are all based.

“If they are here for the tax regime and that changes then they are out,” said Prof Stewart.

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