Republican members of the US Congress have consistently blocked legislation that would clamp down on the type of aggressive tax planning that put Ireland in the spotlight over the past number of months, according to Trinity economics professor, Frank Barry.
Moreover, the US economy, as well as financial centres such as London, have come to rely on the huge flows of capital that are routed through tax havens, he added.
Mr Barry, who is one of Ireland’s leading experts on foreign direct investment, made his comments during a seminar about aggressive tax planning as part of Trinity’s Development Research Week.
Ireland was on the receiving end of unfavourable international media coverage following US Senate Hearings in June, which heard evidence that Apple had avoided paying billions in tax by routing huge chunks of its profits through Irish registered but non-resident companies.
Minister for Finance Michael Noonan introduced legislation in the budget which prohibits companies from registering in Ireland if they are not tax resident in another country.
The chairman of the Senate Committee, senator Carl Levin and senator John McCain both accused Ireland of being a tax haven.
Mr Barry said that Ireland does not meet the criteria of a tax haven according to the OECD definition of the term. This country has a very transparent and open tax framework, he added.
Ireland was included in a list of tax havens by the US government in 2009 based on an erroneous interpretation of the ‘grandfathering rule’ that existed when the Government changed tax policy in the late 1970s to comply with EU regulations, explained Mr Barry. This has since been cleared up.
The existence of tax havens such as Bermuda and the Cayman Islands are an integral part of aggressive tax planning by US multinationals. This was enabled through a change to US tax policy in 1997 that allowed US MNCs to book royalty and intellectual property payments outside the US in what was ‘check the box’ legislation.
Mr Barry pointed out that both senators McCain and Levin voted for this legislation. However, only the repeal of this legislation would eliminate the type of aggressive tax planning that came in for criticism during Senate hearings.
© Irish Examiner Ltd. All rights reserved