Ireland collected €4,500 in corporate income tax revenue per inhabitant last year, five times as much as France and Germany, according to a new report which pinpoints Ireland as one of the main “tax havens” in the world.
The EU Tax Observatory’s “Global Tax Evasion Report” estimated that about $1 trillion (€943 billion) of corporate profits were shifted to low-tax countries, including Ireland, in 2022, equivalent to almost 10 per cent of corporate tax revenues collected globally.
“Profit shifting to tax havens is the process through which multinational companies book profits in relatively low-tax countries, above and beyond what can be explained by their real activity in these countries,” it said.
While it identifies 13 countries globally as the main tax havens for corporate profit shifting, it said Ireland and the Netherlands were the largest “with over $140 billion shifted to each in recent years”.
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In 2019, it said the two countries each accounted for about 15 per cent of the total amount of profits shifted globally.
The report noted that the corporate tax revenues of Ireland “have exploded since 2015″.
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Despite its low rates, Ireland collected the equivalent of €4,500 in corporate income tax revenue per inhabitant, nearly five times as much as France or Germany, which have much higher corporate tax rates (and nearly five times as much as in 2014, adjusted for inflation).
While some of this growth may reflect the relocation of real activities, “a large fraction probably reflects the rise of profit shifting to Ireland, in particular due to the relocation of intangible assets” following the global clampdown on multinational tax avoidance, the OECD-led reform process and the introduction of new patent box regime here, which allows firms apply a lower rate of tax to the profits derived from patented income.
“Whatever the reason, this increase illustrates how absent tax co-ordination and minimum taxation, tax havens can generate high amounts of tax revenues by choosing very low tax rates,” it said.
An indirect way of measuring profit shifting is by comparing wages to profits, the report said, noting that in Ireland, for any euro of wage paid, foreign firms record nearly €6 in profits on average. “By contrast, for local firms in these havens (meaning firms that are not part of a foreign multinational group), the ratio of profits to wages is dramatically lower, around 0.5,” it said.
The report claims the new global minimum rate of tax of 15 per cent for big multinationals being introduced here and in other countries next year “has been dramatically weakened by a growing list of loopholes”.
“The global minimum tax, as things stand, would generate only a fraction of the tax revenue that could be expected from it based on the principles laid out in 2021: less than 5 per cent of global corporate income tax revenue as opposed to 9 per cent with a 15 per cent rate and no loopholes,” it said.
“Even more worrying, the global minimum tax still allows for a race-to-the-bottom with corporate taxes (and may reinforce it) because it allows firms to keep effective tax rates below 15 per cent as long as they have sufficient real activity in low-tax countries,” it said.
Nonetheless it estimated that had the new 15 per cent rate been applied by all countries in 2023, it would have collected an additional $220 billion in revenue globally, equivalent to nearly 8 per cent of global corporate tax revenues expected to be collected in 2023.
