Brian O’Boyle: How tax haven Ireland has undermined our democracy and public services

Ireland's signing of the OECD International Tax Agreement came slowly, and reluctantly. But how did we get to the point where more than 15% tax on profits was seen as inconceivable for corporations?  

In 2017, the Financial Stability Board found that Ireland had the fourth largest shadow banking system on the planet, with $2.2 trillion housed in the IFSC outside the regulatory control of the Central Bank.  File photo: iStock

On 7 October 2021, Ireland signed the OECD’s International Tax Agreement. Ireland had initially been one of only eight countries that refused to sign, alongside the well-known tax havens, Barbados and St Vincent. 

Explaining his reticence, Minister for Finance, Paschal Donohoe, said his government objected to the term ‘at least’ in the original agreement, as this might mean future increases from the 15% already in the deal. 

Since the Second World War, corporation taxes have declined steadily. In the 1950s, companies paid around 50% on their corporate profits, but the OECD average is now just 23%, thanks to help from offshore centers. 

Workers here pay 20% on the first €35,300 and 40% thereafter, but Donohoe was worried that vast conglomerates, some with hundreds of billions offshore, might have to pay more than 15%. Indeed, he made a virtue of the fact that his lobbying had ensured democratic governments, acting collectively, wouldn’t be able to increase corporate taxes into the future. Welcome to the Irish tax haven.

To understand the nature of the Irish offshore system we must go back to 1986. At the time Ireland was in the throes of depression with hundreds of thousands unemployed and many more emigrating. Margaret Thatcher had just defeated the British miners, and anxious to create a more financialised capitalism, she sanctioned a major deregulation of the City of London. 

In the same year, Thatcher’s government was also one of the central forces behind the Single European Market. This created the freedom of movement loathed by many conservatives today, but it also contained a clause that allowed financial products to be passported throughout the European Union. 

Both moves were immediately noticed in Dublin. Thanks to our colonial past and geographical proximity, Irish bankers had historic links to the City of London that could now potentially be strengthened. The State had also begun to attract US multinationals through tax advantages and so the possibility of an Irish financial services centre suddenly came into focus. 

Two men who understood the opportunities better than most were Charles J. Haughey and Dermot Desmond. As CEO of National City Brokers, Desmond was perfectly placed to recognise the potential for an offshore system, linked to the City. He also understood the extraordinary support he would receive in a country steeped in Haughey’s corruption. 

By 1987, Fianna Fáil had established the International Financial Services Centre (IFSC) offering 10% tax on trading income; a range of double taxation treaties; rent allowances for companies in the Docklands and exemptions from local rates. Most importantly, the IFSC offered extremely light touch regulation and soon major companies were piling in. 

So was the money in Haughey’s bank accounts, with the Mahon Tribunal documenting £125,000 from Desmond to Haughey in 1994 and 1996. Over the last 35 years, the IFSC has grown to become one of Ireland’s most important industries. 

Government spokespeople laud the International Financial Services Centre as the heartbeat of a modern, dynamic economy, but it is actually the heartbeat of one of the world’s most important tax havens. 

In 2018, Thomas R. Tørsløv and his colleagues, found that Ireland facilitated €100 billion in tax avoidance during 2015 – more than all of the Caribbean Islands put together. A year earlier, The Financial Stability Board found that Ireland had the fourth largest shadow banking system on the planet, with $2.2 trillion housed in the IFSC outside the regulatory control of the Central Bank. 

Companies often hide in the shadows to break the law and there is substantial evidence that Russian billionaires use Ireland for a process known as roundtripping - sending dirty money out of their own country and bringing it back as ‘investment’ via the IFSC. This practice won’t affect many Irish people directly, but the links between shady finance and the housing crisis have been far more impactful. 

In 2016, a study by UCD School of Social Policy found that 15 global property funds had paid just €8,000 in corporation tax despite having assets worth more than €10 billion. The estimated loss to the exchequer was €500 million and the vehicles that allowed this to happen were created in the IFSC. 

Tax and the housing crisis

By setting up Special Purpose Vehicles known as Section 110 companies’, international investment funds were lending money to their own property vehicles, buying property with this money, claiming tax breaks for the interest they were paying themselves and walking away with tax-free profits. 

In the years prior to these practices being uncovered, Freedom of Information requests revealed that representatives from the Department of Finance had met with international vulture funds 65 times. The government’s aim was to bring a wall of cash into the property sector and the sweetener was tax-free profits using tools created in the IFSC. 

For the companies involved this represented a nice bit of business; for the elites it represented a lifeline for their property values. For everyone else it represented a disastrous housing crisis, as rents skyrocketed, thousands wound up homeless, many more floundered on waiting lists and mortgage prices remained stubbornly high. We hear repeatedly that there has not been enough housing built in the state; that supply is the major problem in the housing market. 

What we rarely hear, is that international funds bought vast tracts of the available land and that they often sit on this land to keep prices artificially high.

Three last points are important. 

The first is that Ireland’s offshore system has helped to undermine democracy in the State. We are encouraged to see Haughey’s practices as those of a particularly bad apple, but the truth is that the entire establishment has facilitated industrial-scale tax avoidance for decades. 

It explains why the State established a financial services lobby group inside the Department of the Taoiseach and why this Clearing House Group could secure favourable tax treatment for wealthy executives during the worst years of austerity. 

Finally, it explains why the European Commission, the European Parliament, A US Senate Committee, all of the tax justice organisations and the Brazilian government have independently criticised the State for supporting companies avoiding their taxes. 

The second point is that our low-tax economy has meant unusually poor public services. Ireland regularly comes close to the top of global lists for income per capita, but near the bottom of European League Tables in terms of housing and hospital waiting lists, childcare costs, pupil-teacher ratios and environmental measures. 

The rich want us to believe we all benefit from their corporation policies, but if you rely on public services, pay a mortgage or need a place to live there are very serious downsides. 

The final point is a moral one. 

Oxfam argue that thanks to the practices of global tax havens, the lives of six million children are lost annually while 124 million children lose out on education. 

In a world of run-away climate emissions and unrelenting inequality, our State should be working to ensure that corporations fund a more progressive future, not facilitating practices that enrich the already rich, while making it harder to hold corporate power to account.

• Brian O’Boyle is co-author of Tax Haven Ireland. The book was written with Kieran Allen and is now available from Pluto Press.