Analysis: This week’s report by the Organisation of Economic Co-operation and Development on multinational taxation may make uncomfortable reading for some Irish policymakers.
This is particularly so when you read the examples given in Appendix C of the report, where the authors describe some corporate structures designed to help multinationals avoid taxation.
The structures outlined are familiar to those who read about such matters and know what is meant by the “double Irish” and the “Dutch sandwich”.
These are the now infamous policies used by such companies as Google, Microsoft and others, whereby profits from sales from the non-US parts of the globe travel to Ireland, only to be flipped on to such places as Bermuda and the Cayman Islands, thereby circumventing the efforts of elected governments to decide who and what should be taxed.
The OECD refers to this practice as profit shifting and says that it is eroding tax bases globally. There is a serious risk to tax revenues, tax sovereignty and tax fairness.
The practices create an unfair playing pitch for those businesses, and business people, who are not in a position to organise global structures so as to avoid taxation. Also, as the report states, “if other taxpayers, including ordinary individuals, think that multinational corporations can legally avoid paying income tax it will undermine voluntary compliance by all taxpayers – upon which modern tax administration depends”.
The report says there is an “urgent” need to address the problem of tax laws, designed almost a century ago to prevent the double taxation of businesses doing international trade, being abused by 21st-century, globalised multinationals.
The taxation system is still fundamentally nation-based, while global companies have long since slipped the moorings that bound them to any particular state. Rules designed to prevent double taxation are instead facilitating “double non-taxation”.
By its nature the issue cannot be addressed on a nation-by-nation basis. The OECD says it is committed to quickly developing a comprehensive action plan and is encouraged to do so by recent prenouncements of the G20.
Interestingly, it could be the case that the outcome of any action that emerges will benefit Ireland, says PwC’s head of taxation, Fergal O’Rourke.
This is because many of the multinationals based here have substantial operations. An outcome from the OECD exercise that closed down the use of offshore locations such as Bermuda and the Cayman Islands, could see Ireland’s multinationals ending up paying more tax here.
The OECD report, calling for immediate action, says the issue will be considered at an international meeting of tax commissioners to be held in Moscow in May.
That meeting will be chaired by Josephine Feehily, chairwoman of the Revenue Commissioners. Perhaps, in time, the double Irish will be taken off the menu, leaving just the Irish Revenue.
