International tax laws - Firm, unified approach is essential

As a skirmish between national governments and international corporations over tax avoidance becomes something far more intense Ireland finds itself in the crosshairs of the US Senate’s Permanent Committee of Investigations.

We are also the subject of considerable negative international commentary because we have come to be regarded as a Caymen Islands-style tax haven; one that protects corporate profits, again legally, at the expense of countries that feel cheated of tax revenues. Those countries, and their citizens, may recognise that we are very dependent on those corporations’ jobs but that will not, nor should it, soften their attitude on the primary issue.

A US Senate report, published on Monday, concluded that “since the early 1990s ... Ireland has calculated Apple’s taxable income in such a way as to produce an effective rate in the low single digits ... the rate has varied ... but since 2003 has been 2% or less”. One estimate suggests that it was as low as 0.05% in 2011.

Even if there are 40m occasionally sentimental Irish Americans, and even if Barack Obama is an Offaly man at heart, it would be unwise to make plans dependent on the long-term survival of those arrangements. Imagine how our EU partners, already unhappy about what they see as our unfair corporation tax rate of 12.5%, will react to that revelation. And they would be right.

Another US Senate finding is that Apple used two Irish subsidiaries to avoid — again legally — some $44bn in tax between 2009 and 2012 — more than €1bn a month! Tax avoidance on this mind-boggling scale will create a momentum for change that will threaten tens of thousands of the very best jobs in this country. It is hard to imagine too that facilitating such schemes, considered legitimate in business but profoundly anti-democratic in spirit, will not harden EU attitudes to contributing further to our economic recovery. It is not difficult either to see that ordinary Europeans, even Irish ones, might feel resentful towards such avoidance schemes just as their lifestyles are being so dramatically rearranged because governments must impose increased tax bills on them.

We are left in an unenviable position, a David caught between two Goliaths, but it would be wrong to imagine this is just an Irish problem. The growing Tory revolt in Britain over EU membership, provoked in part by plans to regulate financial markets, proves that.

International business thrives by playing one national tax or regulatory code against another. The challenge for the international community is to establish and enforce codes that encourage business, but also ensure that multibillion-dollar tax liabilities cannot be dodged by sharp accounting. That this has never been achieved indicates how very difficult that task is. However, unless we are prepared to see even more power swing away from elected governments to international conglomerates without any social or national loyalties then that must be done. It will require political, diplomatic and financial skills of the highest order, great determination too, but the consequences of not doing so are disastrous.

The US report does raise one very important domestic question — who, and in what circumstances, agreed what can only be described as a Lottery-win tax deal on behalf of this State with Apple and how many other secret tax deals are waiting to trip us up?