The past ten days have condensed the challenges and benefits of Ireland’s position at the centre of a corporation tax world gone, quite frankly, bonkers.
On December 2, the Department of Finance published another of its record tax revenue reports. Corporation tax revenue hit €5 billion in November, the highest monthly take in Ireland’s history. “It has comfortably overtaken Vat to become the State’s second-largest source of revenue this year. However, as noted previously, some of these receipts are expected to be once-off in nature and will not reoccur next year,” the Department’s Fiscal Monitor noted.
The last time officials warned of a once-off jump in corporation tax was in March, after more than €1 billion in receipts appeared out of nowhere. At the time, the department warned that this was due to a timing difference, with early payment of revenue initially expected in August. This should have resulted in a corresponding lower tax take in August. Instead, that month saw another €1.5 billion in unexpected payments.
Corporation tax has brought in €21.1 billion this year and is on course to top €23 billion. On a 12-month rolling basis, the Exchequer had returned a €6.2 billion surplus at the end of November. “However, if windfall corporation tax receipts are excluded, this amounts to an underlying deficit of approximately €5 billion on a 12-month rolling basis,” Finance officials wrote.
But when a windfall is repeated month after month, is it still a windfall?
As Thomas reported earlier, very few companies’ contributions can explain such monthly swings in tax revenue, and Apple is a prime suspect here. But current rules prevent us from seeing exactly how much is paid by individual companies that have much larger Irish-based budgets than the state’s – and can make or break Exchequer finances by moving intellectual property at the stroke of a pen. An EU directive now due for national implementation on country-by-country reporting of tax payments could increase transparency significantly.
Knowing how much tax is paid where is one thing but regulating for a level playing field is another.
On Tuesday and Wednesday, Thomas continued his forensic monitoring of the structures used by multinationals. In one example, the pharma giant Abbott maximised the use of a structure we have called the double malt to have nearly €1 billion in profits from Irish-based sales of Covid-19 and other rapid testing kits taxed at a 4 per cent rate in Malta. Although the double Irish tax scheme was officially outlawed two years ago, this is an exact replication of it, squeezed through the loopholes left open by partial amendments to the tax treaty between the two countries. Other multinationals have been using it, too.
Meanwhile, Twilio, a Silicon Valley provider of back-office technology for online marketing, has used the more popular green jersey structure to amortise the value of billion-euro intellectual property against international profits taxable in Ireland. There is just one glitch: While the group reports a global $1 billion value for its entire amortisable intangible assets portfolio, the portion it has located in Ireland for tax-deduction purposes is valued at a much larger €1.5 billion.
There are two ways such egregious uses of tax rules in Ireland and elsewhere could be addressed, and a fighting chance restored for competitors who may have better technology than the incumbents – but not the critical size to minimise their tax bills via Ireland.
One would be active government policy to close down the channels detailed above. The selective editing of Ireland’s tax treaty with Malta, leaving wide open the possibility for an Irish-incorporated company to be tax-resident in the Mediterranean island (a key requirement of US multinationals), shows that there is currently no political will to take this fight down to the fine, fully effective details.
This leaves the option of collective international action, such as the agreement brokered by the OECD for all countries to apply an effective rate of at least 15 per cent on the profits of large multinationals. On that front, the latest news came from Brussels on Tuesday, when the EU’s 27 finance ministers once again failed to agree on a directive transposing the agreement in Europe – as they have all through this year. They now hope to rush it past the brinkmanship of Hungarian Prime Minister Viktor Orbán, who has been using it in a multi-layered poker game against Brussels.
After the US watered down its own implementation of the 15 per cent minimum rate earlier this rate, there is no indication that the practices highlighted above will be curbed any time soon. Ironically, Twilio is not even profitable and therefore not liable to pay corporation tax yet – but its Irish structure is set to deduct intellectual property amortisation costs for 25 years, and it has been patiently banking corresponding Irish tax credits for the future.
Unless some radical policy change takes place, this is the kind of timeframe during which the Exchequer will continue collecting “once-off windfalls” in corporation tax.
Elsewhere this week, Tom interviewed Karl Brophy, the founder of the PR firm Red Flag Global, on the back of strong 2021 financial results for the business. They discussed Red Flag’s roots in Brophy’s journalism career and his experience of corporate intrigue on the board of INM.
Rosaleen met Karen Higgins and John Redmond who, after 30 years of marriage and joint careers at Brown Thomas, have now founded Ecru Studios – a luxury online fashion retailer where careful curation gets priority over overwhelming choice and endless scrolling.
Two companies have been fighting a bitter court battle over brands and trademarks in the highly competitive world of baby wipes. Both Waterwipes and Waterful have been targeting lucrative international markets – and both are Irish. Francesca followed proceedings in the High Court, and there will be more to come.