OPINION:State's role in world of multinational taxation works against aid aims
Ireland has long been proud of its contribution to development aid to Africa and other poorer parts of the world, but the growing amount of information available concerning the role Dublin plays in the tax structures of multinationals challenges that view. There is a strong argument to the effect that more money is sucked out of Africa by way of Dublin than is contributed by way of aid from the Irish exchequer.
The extraordinarily prominent role that Ireland plays in the world of multinational taxation was starkly illustrated during a recent sitting of a Senate committee in Washington.
The Senate Permanent Subcommittee on Investigations used Microsoft as a case study on how multinationals are using global structures to avoid US corporation tax. The committee chairman Carl Levin was careful to make the point that his committee was a fan of Microsoft’s creativity and entrepreneurial spirit, but not of its tax policies. Other multinationals acted in the same way, he said.
Using access to confidential information granted to the committee by Microsoft, a memorandum was drafted which, amongst other matters, showed how Microsoft used its Irish subsidiaries to reduce its 2011 US tax bill by $2.43 billion (€1.87 billion).
The $2.43 billion saving was achieved mostly through the avoidance of tax on royalty payments between Microsoft Ireland Operations Ltd, and a subsidiary, Microsoft Ireland Research, which is in turn a subsidiary of a company called Round Island One.
The three companies have their registered addresses at 70 Sir John Rogerson’s Quay, Dublin, the offices of solicitors Matheson Ormsby Prentice. Round Island One is a Bermuda company, despite having its registered office here. It was incorporated in 2001.
Taxed in Dublin
The memorandum outlined how Microsoft’s global structure has three centres outside the US, with one, the pioneer, being Ireland. The Irish centre funded another of the global centres, in Puerto Rico, which is used to help the company avoid corporation tax on sales in the US itself.
The Irish centre is responsible for retail sales in Europe, the Middle East and Africa. Because Microsoft Ireland Research has the right to sell Microsoft products in that geographical zone, profits on the sales of Microsoft products in that vast portion of the globe end up in 70 Sir John Rogerson’s Quay.
Seen from the perspective of Africans, it must be very rum indeed to see profits from sales in their countries being taxed in Dublin, to fund a society a million miles away from theirs in terms of development.
All multinationals organise their global affairs so as to minimise their tax bills. It is particularly easy to do it with technology firms, because of the importance of intellectual property to their profits.
Most of the world’s large technology companies have their Europe, Middle East and Africa headquarter operations in Ireland, often because they envy and want to outdo the “success” of Microsoft’s tax structures. The amount of profit being booked here that arises from trade in Africa and the Middle East is not known, but it must be a large figure from the point of view of African national budgets.
According to the Department of Foreign affairs, Ireland’s total official development assistance package is likely to amount to €639 million in 2012. On current projections, this will mean that Ireland will put 0.5 per cent of gross national product towards development assistance. (In 2008 the percentage was 0.59 per cent and the amount was €920.6 million.)
Ireland scores well in terms of the percentage of GNP it devotes to development aid, but it also punches above its weight in attracting multinational headquarter operations to its shores.
Insofar as the system strips poorer parts of the globe of taxable profits, Ireland plays a role that works directly against the objectives of its development programme. It is worth considering that something akin to 60 per cent of global trade, according to the Organisation for Economic Co-operation and Development, now happens within multinationals, ie between subsidiaries of the same multinational group.
A key objective for development aid should be to assist countries organise their affairs so that they no longer need aid. Christian Aid and other groups critical of how the global system operates for multinationals have been campaigning for country-by-country reporting of such matters as turnover and profit, something that would at least allow a more informed debate. The published accounts of multinationals give scant information as to the distribution of their turnover and profits.
Sorley McCaughey of Christian Aid has lobbied the Department of Finance on the issue. “The officials I met told me they would not object to country-by-country reporting. However, they would not go so far as to say they supported such a development.”
In response to lobbying by Christian Aid, Minister of State for Trade and Development Joe Costello said developing countries needed to generate their own revenues, that Ireland was providing support to African tax authorities, and that it was working within the EU on a number of associated issues, including country-by-country reporting.
However, any audit of the flow between Dublin and Africa would probably find more money heading north than south.
Colm Keena is public affairs correspondent