Commission’s tax probe criticised

Ireland is being investigated by the European Commission over its tax affairs because the commission is looking for some positive media coverage, according to Professor Frank Barry of Trinity College, Dublin.

Speaking at the joint subcommittee on global taxation, Mr Barry said the US and UK could easily close the majority of the world’s tax havens if they wanted. He claimed Ireland was being made a scapegoat in coverage of the tax arrangements that some multinationals engineered here.

“Why Ireland gets mentioned and called a tax haven is simply that the American politicians don’t want public recognition for the fact that they are responsible for allowing corporations to avoid immediate taxation. I guess it is populist politics at play,” Prof Barry said.

The commission’s informal probing of tax deals here may be little more than opportunistic posing, he said.

“I think there is a sense that the European Commission has been so sidelined by the euro crisis [that] it is nowhere near as important as it was five years ago. They may be struggling to find a role for themselves and they are being overshadowed by the OECD on this. They are saying, ‘look, we want a bit of publicity out of this.’ That’s a sceptic’s point of view but I think there might be validity to it.”

Prof Barry recounted Ireland’s history of using taxation as an incentive for foreign direct investment, which he pointed out was developed with US aid after money from the Marshall Plan was used to help this country develop similar policies to Puerto Rico.

The earliest mention of Ireland using export profit tax relief was in the files of the Irish Examiner and the establishment of the Faber Castell plant in Fermoy in the 1950s.

He went on to elaborate that it was a change in the US tax code, not the Irish one, which allowed the likes of Google and Apple to minimise their tax payments.

The ‘check the box’ legislation that the US introduced in 1997 was allowing US companies to minimise tax through Ireland, he said. “It paved the way for creative tax accounting by multinationals.”

The legislation allows US companies to choose for themselves how to classify their subsidiaries for tax purposes, helping them to exploit differences in tax codes internationally.

“The IRS realised very rapidly that the multinationals had started to exploit this and tried to row back, but huge corporate lobbying pressures came to bear and instead it got written into law,” Prof Barry said.

Asked should Ireland make a unilateral move to close loopholes, Prof Barry said that changing Ireland’s tax code could have unforeseen consequences.

“The incredible stability of our corporate tax regime over 60 years has really only changed two or three times. If we start tinkering with it in response to short-term considerations we lose the benefit of that stability,” he said.