MANY MULTINATIONAL firms based in Ireland are able to pay a fraction of the official 12.5 per cent corporation tax rate as a result of arrangements which allow them to write off losses for tax paid abroad, new research suggests.
Instead, many larger multinationals may be paying average rates of between 4 and 7 per cent. The research is contained in a recent paper by Dr Jim Stewart of Trinity College Dublin and draws on official figures produced by authorities here and in the United States.
Separately, at least 25 multinational companies are known to have relocated their corporate headquarters to the Republic to avail of similar incentives, according to the latest Revenue Commissioner figures.
The Revenue has conceded some of these companies are paying “little or no tax”, but points out they contribute to the economy in other ways such as back-office activities including research and development and treasury functions.
While some of these companies have a significant commercial presence on the ground in Ireland, there are others which employ few if any people, leading to accusations that Ireland has been marketing itself as “Liechtenstein on the Liffey”.
A recent World Bank/PricewaterhouseCoopers report, Paying Taxes 2011, indicated Ireland’s effective corporation tax rate was 11.9 per cent, compared to our official rate of 12.5 per cent.
This was widely cited by the Government in defending Ireland’s corporation tax rate in the face of opposition from EU member states such as France earlier this year. Dr Stewart’s paper, however, notes this figure was based on corporation tax for relatively small companies with fewer than 60 employees.
In contrast, he notes figures produced by the US Bureau of Economic Analysis estimate the average effective tax rate for US companies in Ireland at between 4 and 7 per cent, depending on the way profits are calculated.
As well as obtaining credits for foreign tax paid by their subsidiaries, multinationals can also trim their tax bills using depreciation allowance, credits for research and development, and other routes.
Despite this, corporation tax remains a significant source of revenue and was worth about €3.9 billion in 2009.
Over the last 10 years, US companies have paid 33 per cent of the total of corporation tax accrued.
Meanwhile, the number of multinationals relocating their corporate headquarters here for tax reasons has continued to grow. Major companies which have moved their corporate headquarters here include United America Indemnity, global insurer XL Capital Ltd, and the New York-listed international group Willis.
In a statement, the Revenue defended the tax regime on the basis that it is likely a holding company can bring with it back-office activities such as research and development and treasury functions.
“In moving its holding company to Ireland, a multinational which already has operations here would become more embedded in Ireland, thus increasing the possibility of future investment here also,” the statement said.
The Revenue said evidence to date suggests multinationals which already have a presence here and which move their head office or regional head office to Ireland have consolidated their Irish operations.
Furthermore, new companies setting up a head office here have tended to move other activities such as treasury operations here also.
Several EU countries have similar regimes which also make them attractive as holding company locations. These include the Netherlands, Luxembourg, the UK, Denmark, Spain, Switzerland and Belgium.
Corporate relocations: Tax regime and other measures lure companies here
AT LEAST 25 multinational firms have relocated their corporate headquarters and tax residencies to Ireland as a result of our corporate tax regime and measures which allow them to reduce taxes on royalties, dividends and capital gains from subsidiary companies.
Some of them include:
* Beazley
The Lloyd’s of London insurance group is UK listed and incorporated in Jersey, but tax resident in Ireland. It says the move to Ireland was motivated by tax and the regulatory environment.
* WPP
The advertising firm employs about 141,000 people worldwide. It moved its tax base to Ireland due to what it said was uncertainty regarding the future of UK taxation policy. It is now planning to return to the UK next year.
* United Business Media
The publishing and media company moved its tax base to Ireland to benefit from a lower rate of corporation tax and a simpler tax system.
* Charter International
The engineering group employed almost 12,000 people globally at the end of last year, but does not list how many it employs in Ireland.
It is registered in Jersey and has its corporate headquarters and tax residence in Ireland.
* Shire
Shire Pharmaceuticals is the UK’s third-largest pharmaceutical company and has had its corporate headquarters and tax residence based in Ireland since 2008.
* Willis
The world’s third-biggest insurance broker, which has 20,000 employees including 300 here in Ireland, moved its corporate headquarters here from Bermuda in search of a “more stable environment”.
* James Hardie Industries
Australian cement maker James Hardie Industries moved its corporate domicile to Ireland from the Netherlands.
* XL Insurance
The insurance firm XL Capital Ltd moved its corporate headquarters here from the Cayman Islands last year in “the best interests of XL and our shareholders”.
