Monday, February 12, 2018

The national balance sheet

After looking at the improvements household sector financial balance sheet here we consider what is happening to the balance sheet for the entire economy.  Ireland has a bit to go until the presentation of our national balance sheet data reaches the level provided by the ONS for the UK but we can get a good idea of what is going on from the information that is available. 

The national balance sheet essentially comprises four items:

  • Non-produced fixed assets (such as land)
  • Produced fixed assets (such as buildings, infrastructure, equipment and IP)
  • Financial assets (such as deposits, equity and pension savings), and
  • Financial liabilities (such as loans)

For Ireland, the CSO provide figures for the latter three but estimates of the stock of non-produced assets are lacking and a broader measure of produced non-financial could be provided with the addition of estimates for inventories, and possibly, valuables.  There are very few countries providing these figures to Eurostat but their number is increasing. 

Still, what we have gives us a good start and there is a lot going on.  First a look at the broad categories since 2001.

National Balance Sheet 2001-2016 Table

Excluding land, for which figures for Ireland are not available, we can see that total net worth of the Irish economy was just over €240 billion at the end of 2001.  This rose to over €440 billion by around 2006/07 but this was based on inflated valuations and by 2011 net worth had fallen back to €180 billion.  It has recovered since then at stood at €315 billion at the end of 2016, or €66,600 per capita.

Behind this net worth figure the gross amounts are enormous, particularly on the financial side which is influenced by the investment funds linked to the IFSC.  These have huge gross positions but, by and large, the assets and liabilities net off against each other.  We can see this if we look at the net positions by sector.

Unfortunately, we are only give a breakdown of net financial worth by sector.  Ireland is one of seven countries that do not provide a breakdown of produced fixed assets by sector (the other six are Bulgaria, Cyprus, Malta, Romania, Slovakia and Spain).  This means we can’t get net worth (as defined here) by sector but we can track net financial worth by sector.  And it’s quite the roller-coaster.

National Balance Sheet by Sector 2001-2016 Table

By 2007, net financial worth of the total economy was a little less than minus €60 billion.  In the nine years since it has deteriorated by over €400 billion.  As we looked at earlier the net financial position of the household sector has been steadily improving and by the of 2016 was up more than €100 billion on its 2007 level.  Over the same period the net financial position of the government sector has deteriorated by €150 billion, with the net financial worth of non-financial corporations going south to the tune of €400 billion.  The position of financial corporations has bounced around a bit but has never gone outside the range +/- €50 billion.

The government doesn’t have a whole lot to show on the balance sheet for its borrowing as a lot of it went to fund current expenditure.  There has been a significant rise in produced fixed assets and it is easy to see that most of this has been bought by the NFC sector so the fixed assets will be matched by accompanying financial liabilities.  The household sector has been deleveraging and there has been very little output of the produced fixed asset it would buy: housing.

Anyway, even though the net financial position of the economy is down €400 billion since 2007, once we account for produced fixed assets that have been acquired we see that the net worth of the economy has gone from €440 billion in 2007 to €315 billion in 2016, a reduction of €125 billion.  Part of this fall and rise will have been due to house prices but it should be noted that the value of dwellings included in produced fixed-assets excludes the value of the land on which the property sits.

Here is what has happened to the nominal net values (i.e. after depreciation) of the main produced, non-financial assets. 

National Balance Sheet by Fixed Asset 2001-2016 Table

It can be seen that the nominal value of dwellings (excluding site value) fell by €85 billion in the years following 2007 and has recovered about half of that.  The value of other buildings is well ahead of 2007.  In the past two years the stock of fixed assets has surged by €300 billion with most of this due to changes in the suppressed categories dealing with aircraft for leasing and IP licenses.  As most of these are likely linked to financial liabilities they will net out in the overall net worth position.

There might be other items we would wish to see included particularly in relation to contingent or accrued liabilities.  At the sectoral level this might give a different view but in overall terms the net position of the economy would be unchanged as a liability for one sector would be an asset for another.  This would be the case, for example, is accrued pension liabilities to public sector workers were included.  They would be a liability for the government sector and an asset for the household sector.

So where stand us in relative terms compared to the rest of the EU15?

EU15 Total Net Worth Per Capita 1995-2016

Not great actually, but after the vertiginous drop in 2008 and flatlining from 2010 to 2014 we have been pulling away from the bottom of the pack for the past few years.  The volatility in the Irish series is not seen for any other country.

What would happen if land was included?  Here are the per capita net worths excluding and including land for the four countries which provide such estimates.

Net Worth without and with Land

Given the changes here it seems probable that Ireland’s per capita net worth would roughly double if the value of land was included, though the relative ranking in 2016 may not be much changed if this was applied across all countries.  Let’s hope we can rise through the rankings in a more sustainable fashion this time.

To conclude here are the main items on the balance sheet in per capita terms for Ireland since 2001.  Click to enlarge.  And note again these values are nominal.

Ireland National Balance Sheet per capita 2016 Table

And for the countries of the EU15 (excluding Luxembourg) for 2016.

National Balance Sheet per capita 2016 Table

Friday, February 9, 2018

Some snapshots of labour markets in the EU15

Here are some snapshots of conditions in the labour markets of the EU15.  They are offered without commentary.

  • Self employed with no paid employees
  • Temporary employees
  • Temporary agency workers
  • Shift workers
  • Underemployed part-time workers
  • Contracts of limited duration
  • Precarious employment rate
  • Employed persons with a second job
  • People working 49 hours or more per week
  • Employees at-risk-of-poverty

EU15 LFS Self Employed with No Paid Employees

EU15 LFS Temporary Employees

EU15 LFS Temporary Agency Workers

EU15 LFS Shift Workers

EU15 LFS Part-time Underemployed

EU15 LFS Contracts of Limited Duration

EU15 LFS Precarious Employment Rate

EU15 LFS Second Job

EU15 LFS Long Working Hours

EU15 SILC Employees AROP 2009-2016

Thursday, February 8, 2018

Why are the household sector financial transactions accounts of the CSO and the CBoI so different?

Both the Central Statistics Office and the Central Bank of Ireland produce financial accounts for the various sectors of the economy.  At the headline level they say much the same thing.  If we look at the household sector we can see that both report much the same outcomes for the net financial asset position.

Net Financial Assets CSO and CBoI

However, if we go below the surface we see that how this end-of-year stock position has been reached, particularly for the past few years, differs hugely between the two agencies.  The are two ways in which the stock of assets or liabilities can change:

  1. Financial transactions
  2. Valuation effects

Both agencies produce financial transactions accounts so we can see how much of the change is due to actual transactions in assets and liabilities rather than valuation or other changes.

Here is the household sector financial transaction account of the Central Bank for 2012 to 2016 where annual figures are got by summing over the four quarters in each year.

Household Sector Financial Transaction Accounts 2012-2016 CBoI

Over the five years in question the net financial asset position of the household sector increased by around €90 billion.  The financial transaction account of the Central Bank indicates that just over €50 billion of this is due to financial transactions with households:

  • putting an extra €12 billion on deposit
  • adding €2 billion to their equity investments
  • contributing a net €11 billion to private pension plans, and
  • repaying €27 billion of debt

The other €40 billion was due to valuation effects which was almost entirely arose in pension funds with the value of these rising from €70 billion at the end of 2011 to €122 billion at the end of 2016 (which far exceeds the €11 billion of net transactions into them).

And now let’s look at the household sector financial transaction account published by the CSO.

Household Sector Financial Transaction Accounts 2012-2016 CSO

Here, instead of being €50 billion, the net financial transaction of the household sector for 2012 to 2016 are put at €16 billion.  That’s quite the difference.  But for most items the differences are relatively small.  According to the CSO’s accounts the household sector:

  • put €11 billion extra on deposit
  • contributed a net €13 billion to private pension plans
  • and repaid €27 billion of debt

But the numbers for equity transactions are hugely different.  The Central Bank had the household sector adding about €2 billion to their equity holdings while the CSO show the household sector making net sales of €36 billion – a difference of €38 billion!  And of this almost all relates to unlisted shares.  A previous discussion of the household accounts published by the CSO is here with the final part dealing with this issue of unlisted shares.

The balance sheet position of unlisted shares given by CSO and the Central Bank has been almost identical for the past few years.

Unlisted Shares CSO and CBoI

There isn’t a smidgen between for the past few years which is quite something given then one figure is based on €2 billion of net acquisition transactions since 2012 (the CBoI) and the other figure is based on €36 billion of net sales transactions since 2012 (the CSO).

Why does all this matter? It matters for the savings rate.  Per the Central Bank numbers much of the improvement in the financial position of the household sector has been made by ongoing savings transactions such as adding to deposits and private pension plans and make repayments on loan liabilities.  Per the CSO numbers this activity has had a much smaller impact and almost all of the improvement has been due to valuation effects particularly for pension funds and unlisted shares.

Looking at this issue in chart form here is the net financial transactions reported by both agencies.

Household Sector Net Financial Transactions CSO and CB 2002-2016

This divergence didn’t arise on the liability side:

Household Sector Financial Liability Transactions CSO and CB 2002-2016

But as the tables above have shown all the difference has arise on the assets side:

Household Sector Financial Asset Transactions CSO and CB 2002-2016

Why the difference?  The CSO produce far more than the Financial Accounts and are seeking to reconcile the outcomes with those in the Non-Financial Accounts.  In particular, they are looking for a reasonably good relationship between net financial transactions and net (lending)/borrower at the bottom of the capital account.  And they have it:

Household Sector Net Outcomes CSO 2002-2016

This capital account shows that from 2012 to 2016 the household sector was a net lender of a cumulative €7 billion and that in 2015 and 2016 household current expenditure on consumption and capital expenditure on fixed capital formation exceeded household disposable income.  The Irish household sector is a net borrower once more.

But as the balance sheets show this five-year period corresponds to a time when households:

  • added around €11 billion to their deposits
  • made €12 billion of net contributions to pension funds, and
  • repaid €27 billion of debt.

How did households afford these €50 billion of financial transactions when there was only €7 billion of net lending available?  Well according to the CSO the household sector did this by selling €36 billion of unlisted shares – though this is probably the balancing item where the necessary reconciliation is dumped . But why is it necessary?

Monday, February 5, 2018

Very low work intensity by tenure status

It is not hard to see why the issue of “jobless households” is something worth keeping an eye on from an Irish perspective.  Here are figures for the EU15 since 2003.

EU15 SILC Jobless Households 2003-2016

A while back we looked at the breakdown of this by household type.  Conclusion: Ireland has unusually high rates of jobless households for all household types. Here we will look at the differences by tenure status.

EU15 SILC VLWI by Tenure Status Table 2016

There may be a compositional force for the overall level of jobless households at play here.  We can see that in 2016 Ireland has the highest overall level of people living in jobless households (18.2 per cent).  For each tenure status Ireland ranked third worst (or joint second in the case of tenants paying less than market rates). Thus if Ireland has a similar population composition by tenure states we might expect to be ranked third worst in 2016 rather than worst in overall terms.

If we look at it in levels, for both types of owner occupiers we see that Ireland is only a couple of percentage points above the arithmetic mean of the EU15.  For tenants paying the market rate Ireland is seven percentage points above the mean for the EU15 and for tenants paying less than the market rate Ireland is 15 percentage points above the mean.  The relative size of these groups may matter.

We did look at the composition of the entire population by tenure status in an earlier post which gave a broad sweep though many of the housing and housing costs measures in the SILC.  Here is the table from that post but it is for the entire population not those aged under 60.

EU15 SILC Distribution of Population by Tenure Status 2016 Table

Ideally we would like this table for the population aged 60 and under but this does not appear to be available from Eurostat.  This population aged 60 and under will likely have a smaller proportion of owner-occupiers and, in particular, owner-occupiers which no mortgage or loan than the overall population. 

So we can’t be definitive but it seems likely that around half of the people living in jobless households in Ireland live in households who are tenants paying less than the market price (mainly local authority tenants).  It is impossible to tell the nature or direction of any causal relationship, or even if there is one, from the headline figures here.

Here is how the levels of jobless households in Ireland have varied by tenure status since 2003.

SILC VLWI by Tenure Status 2004 to 2016

And to conclude here are the levels for tenants paying less than market price across the EU15.

EU15 SILC VLWI Tenants Reduced Rates 2003-2016

Sunday, January 28, 2018

Ireland’s Corporation Tax at Davos

One of the sessions at the World Economic Forum in Davos last week was on corporate tax avoidance.  A recording of the session is here while two contributions from one of the panelists, Davide Serra are reproduced below [timestamps].

[16:30] In my view what we have here is very simple.  I think we're lying to voters and I think business has to stand up and do numbers.  So, for example, and I just go through a couple of simple numbers.

Google, not to refer Apple, in Ireland, and I use Ireland simply because the Finance Minister, we can do this the same for Luxembourg and The Netherlands, booked revenue of 22.6 billion euro, 22.6 billion euro in 2015.  They paid to Ireland only 48 million euro.

Ireland says has a tax rate of twelve and a half per cent which is competitive. There is only one problem, in Ireland if you set up a business and the business is 100 per cent controlled abroad you basically pay zero taxes.  So, it's correct within tax law in Ireland. They are correct.  There is only one problem what happens if everybody were to book their foreign subsidiary in Ireland. And that's what happens.

So, running the numbers, this is realised 60 billion euro of tax elusion - evasion.  I consider borderline to criminal in three Member States.  Of course, they're not going to say, and they're not going to put themselves on the back list.  It's easy to put Samoa Islands or someone else.

And why is the system 100 per cent rigged? Because too many benefit out of it: the consultants; the auditors; all the bureaucrats. 

And, so I think it is very simple.  You need to have by law that any corporation that is listed and wants to have global standards give me one number: total tax paid, where, total number.

If you have asked this to Facebook, take Facebook, they pretend to be good citizen. Now they paid four thousand pounds, four thousand pounds of taxes in 2014 in the UK.  If I take reported, if I add every annual report of Facebook globally and I see what's the tax paid, I see the number, it's zero.  They post ten billion dollar profit. 

So, explain to someone if I add every annual report that you file in every country and you pay zero taxes. And you pay zero taxes it is very simple. If you are listed company in the world you must give me one number, total tax paid in which country. And all this discussion, ends.

[28:00] So it's very simple. Within Irish tax code, if you have a multinational that is 100 per cent directed outside Ireland, de facto, you are not taxed. Hence, and this is the law, and I am happy to challenge you in the rule of law.

So, Google 22.6 billion euro revenue in Europe in 2015.  How much taxes were paid in Ireland? Forty eight. Equates to zero point zero zero two. Better deal than Apple. Hence, every study ends the same and I run my regulated business by the CBI in Ireland. So, I am a businessman in Ireland.

Ireland, if you are in Ireland, you are charged twelve and half per cent.  If you are someone global, you put everything there, they don't see you. Now this has equated to more than twenty billion euro elusion per year of European taxes.

When as a European citizen I look at an Irish citizen: since you joined the European Union, Ireland had net contributed to the EU budget 150 million euro.  Why are you allowing elusion, so less revenue, losses to European citizens of 20 billion, it’s a ratio that is five hundred times per year.

I say, and I love Ireland and I have a business in Ireland and it's a great business community, tax everyone no matter where they come from at twelve and a half per cent because if you tax people at zero point zero zero two this is a joke.

[56:00] For me it’s very simple: every corporation in the G20 to report how much tax they paid in local currency, country by country. 

Let me give you a simple example.  I know Google in Ireland 22.6 billion of revenue; only five thousand employees. So each employee in Ireland, in Google, generates 45 million revenues.

And, hence, there is only one way, tell me how much taxes you paid in each country, every corporation. And every citizen through their pension fund, mutual fund, ETF if you don’t see the number I’m sorry I blacklist the institution.

Because before we wait for politicians to agree BEPS, SEPS, OECD and all this acronym there has been ten year of 600 billion euro tax elusion, 6 trillion euro.  As a result it’s time to act; no more words.  And it’s up to citizens to stand up.

At the end, Professor Joseph Stiglitz said “it is only outrage that will stop and reform the system”.  The contributions from Serra satisfy the outrage requirement and would do well if the gauge by which they are judged is that “it wasn’t what you said, it wasn’t how you said it, it was how you made me feel”.

But what is said matters.  And the simple issue with Serra’s contribution is that it is wrong.  The system of collecting taxes from the profits of companies has numerous problems but if the proposals for reform come from outrage rather than analysis we could end up with something that is worse than what we have now.  Let’s look at some of the claims.

First, a 0.002% tax rate for Google.  As a businessman he is surely aware that a corporate profits tax is charged on corporate profits not revenue.  Here is Google Ireland’s income statement for the past two years.

Google Ireland Income Statement 2015 2016

Serra focused on 2015 and we can see that, yes, Google Ireland Ltd. had revenue of €22.6 billion in 2015.  The first thing to note is that €47.8 million is 0.2 per cent of €22.6 billion not 0.002 per cent.  His sums were out by a factor of a hundred.  Ah, but we need outrage on this so that’s ok.

But comparing tax to revenue is not ok.  We have to get to profit before we have something we can compare to the tax bill.  So what expenses does Google Ireland Ltd incur?

The first is €5.5 billion in 2015 for “cost of sales”.  Per the accounts “costs of sales” is:

Google Ireland Cost of Sales note

So, this is the money paid to third-party sites to host Google ads.  After we subtract this €5.5 billion we get to gross profit, then we need to subtract administrative expenses to get operating profit.  The administrative expenses are made up of three items.

Google Ireland Administrative Expenses note

Unfortunately, we don’t get a direct breakdown of these in the accounts but we can get a fairly good handle on them as we did here.  In 2015, staff costs for Google Ireland Ltd. were €365 million with other ongoing costs likely coming to a couple of hundred million euro as well. 

Google Ireland pays about €4 billion to other Google companies in its market area (EMEA) for sales and marketing services carried out by the staff there (with each of those companies also paying some corporate income tax in the countries in which they operate).  Google’s 10k form shows that it incurred a current tax charge of $723 million outside the US in 2015 and this rose to $966 million in 2016.

Google Income Taxes 2014-2016

But back to Google Ireland Ltd.  We still have around €12 billion of the administrative expenses shown in the 2015 accounts to the explained.  We can see what this is from this note from the accounts of Google Netherlands Holding B.V.

Google Netherlands Income

In 2015, Google Ireland Ltd. paid €12.0 billion in royalties to Google Netherlands Holding B.V. who in turn (along with some royalties received from Google Asia Pacific Pte Limited) paid that on in a royalty expense to Google Ireland Holdings which is based in Bermuda.

But back to Ireland.  After some interest income, and expense, we get the profit on ordinary activities of Google Ireland Ltd.  This was €341.2 million in 2015 and on this the company had a tax charge of €47.8 million giving an effective rate of 14.0 per cent.  The accounts explain why this differs from Ireland’s headline 12.5 per cent rate:

Google Ireland Tax Recon

We can see that among the adjustments the company has some expenses which were not deductible for tax purposes (possibly entertainment expenses), had some income that was taxed at higher rates (Ireland has a 25 per cent Corporation Tax rate on non-trading income such as interest), has some income that was not subject to Corporation Tax at all, and also incurred some withholding taxes in other jurisdictions.  Sum through those and you get the €47.8 million tax charge for the year.

Does putting this number over revenue and spouting about 0.002% tax rates mean anything? Not one thing.  And wouldn’t even if the arithmetic was correct.  If there are issues to be raised it has to be with the expenses deducted to get from turnover to operating profit.

Can there be a problem with the €5.5 billion Google paid to other parties that allowed them to host ads on their sites? Surely not.  Or the €5 billion of staff and other expenses that Google incurred in Ireland and across its market area. Again, surely not.

Maybe there are issues with the €12 billion license royalties paid by Google Ireland? Maybe.  But Google Ireland is selling ads on a platform that was developed somewhere else.  That the Irish company has to pay a royalty for the right to use that platform is not that surprising.

Of course, the technology is developed in the US and it would seem natural that the royalties would flow there, but Google has availed of provisions in the US tax code that allow it to move “offshore” the license to use its technology outside the US and this license is held by a company based in Bermuda.

When the structure was originally set up Ireland would have charged a withholding tax on the outbound royalty payment if it was made to to Bermuda so the money doesn’t flow directly to Bermuda but instead makes a brief stop in The Netherlands.  Ireland is not permitted to charge withholding tax on such payments made to The Netherlands because of the EU’s royalties directive disallowing them for such flows between EU Member States.  The Netherlands then allows the money to flow to Bermuda without being exposed to a withholding tax there.

So, does the €12 billion stay untaxed in Bermuda?  Some of it, yes, but not all of it.  To get the international license for Google’s technology, the Bermudan company must make a cost-sharing contribution to the overall research and development costs incurred by Google Inc.  This contribution is based on the size of the market the license covers. 

It is likely that the Bermudan company has a license that covers markets that generate about 60 per cent of Google’s revenue thus a chunk of the money that flows to Bermuda must in turn flow to the US to cover the group’s R&D costs.  In 2015, Google spend $12.3 billion on R&D so it is likely that the company in Bermuda had to make a payment to cover around $7.4 billion of that. 

The Bermudan company does get to keep what’s left and that adds up to a pretty penny but it is wholly wrong to suggest that the starting point of €22.6 billion generated in the Irish company is profit.  From this we have seen that in 2015 Google:

  • pays out €5.5 billion to the owners of websites on which ads are hosted;
  • incurs around €5 billion of staff and expenses (including tax!) in Ireland and its other markets;
  • contributed around €5 billion to the R&D undertaken in the US.

After all that is accounted for there was probably €7 billion or so left from the original €22.6 billion in 2015 and this accrued to the company in Bermuda.  Does that company have the substance that would justify such profits? No. So where should these profits be taxed?  Pascal Saint Amans, head of the OECD’s BEPS project, provided an answer when he appeared before the Oireachtas Finance Committee a few years ago:

Assuming the best action plan translates into domestic legislation in all countries, including the US, the companies in question would be taxable in the US and would not benefit from what they currently enjoy, which is double non-taxation.

Why should the profit be taxed in the US? Because that is where the key risks, functions and assets that make Google profitable are located.  It is the US system tax allows the international license to be put offshore for an annual cost-sharing payment. 

The OECD would prefer this was profit-sharing with each side getting to keep a share of the profit relative to the risk and value-adding activities that it undertakes.  If all the Bermudan company does is provide funding for Google’s R&D activity then all it should receive is a financial return for providing the funding with the bulk of the profit accruing the Google Inc. in the US. 

It is US tax that is impacted by the Irish structure.  Google’s structure has been put under intensive audit in a number of countries including the UK and France.  Both ultimately concluded that the structure was in compliance with their laws.  The company itself have said they will alter the structure somewhat but the impact on tax payments remains unclear.

If more tax is to be paid in the market countries then it requires a change to the system.  Davide Serra does make an interesting proposal that part of what makes these companies profitable is the data they collect from and on their customers.  This could be considered an asset in the market country which could be used to justify greater tax liabilities to those jurisdictions.  Something along these lines could happen with, for example, the proposed “digital economy tax” in the EU, but absent such a development the bulk of the tax on Google’s profits is due to the US.

How much tax does Google pay? Lots. But we’ll shift our attention to Facebook. Serra said that if we look at Facebook’s annual reports “I see what's the tax paid, I see the number, it's zero.  They post ten billion dollar profit.”  Does Facebook pay zero tax on €10 billion of profit?

Facebook will announce their 2017 results later this week but here are the company’s annual income statements for the five years from 2012 to 2016.

Facebook Income Statements 2012-2016

We can see that Facebook had a net operating income of $10.2 billion in 2016 and that this was after a tax charge of $2.3 billion.  That is a long way from zero.  If we look at actual cash taxes paid we see that Facebook paid $1.2 billion in income tax which was just under 10 per cent of its pre-tax income. 

Facebook’s cash tax payments have been lower than its tax provision in recent years because it had substantial losses carried forward from its early years when it spent huge sums with little no incoming revenue.  These losses have likely been exhausted so it will be interesting to see if there are higher cash tax payments in the 2017 annual report.  There likely will be but for 2016 we can clearly see that the $1.2 billion of tax paid is quite a deal more than the zero claimed by Serra.

It’s probably also worth showing a similar table for Google (which also announces 2017 results this week).

Google Income Statements 2012-2016

Cash tax fell to $1.6 billion in 2016 and on this the company said “the timing of tax payments and refunds had a favorable impact to our cash flows from operations for 2016 compared to 2015.”  It is a bit of a guess that the 2017 accounts will likely show cash tax as a per cent of pre-tax income heading back towards the 18 per cent levels that were seen in 2014 and 2015.

But enough of the $12.4 billion of tax that Google paid in the five years to 2016 and back to Serra and his claims that Ireland doesn’t tax certain companies and that “if you have a multinational that is 100 per cent directed outside Ireland, de facto, you are not taxed.”  It is not clear but it seems likely he is referring to company residence.

But, this only refers to a company’s tax residence in Ireland, not whether it owes tax to Ireland.  If a company has operations in Ireland then regardless of who owns it, where it is controlled from, or where it is resident then it will owe tax in Ireland on the profits it earns in Ireland.

The trouble with Serra’s claim that “you are not taxed” is that, in relative terms at least, Ireland collects a huge amount of Corporation Tax and figures from the Revenue Commissioners show that four-fifths of this is paid by foreign-owned companies.  All of these are multinationals that are “100 per cent directed outside Ireland”.

In 2017, Ireland collected €8.3 billion of Corporation Tax.  With 80 per cent of that likely collected from foreign-owned companies then they paid €6.6 billion of Irish Corporation Tax.  

This notion of foreign companies not being taxed in Ireland is hard to square with the ongoing debate about the sustainability of Ireland’s Corporation Tax receipts at the current elevated levels and the possibility that Ireland is collecting too much rather than too little Corporation Tax.  So “de facto, you are not taxed” doesn’t seem so de facto at all.

Here is a 2016 comparison for two EU Member States.

Ireland and Italy

The bottom line is that, in 2016, on a per capita basis, Ireland collected €1,660 of Corporation Tax compared to €560 in Italy.  There are lots of reasons to get stuck into for why this might be the case.  To think that can be done with tax rates of 0.002 per cent (or even 0.2 per cent) is a joke.  As is putting someone on a panel at the World Economic Forum who actually says so.

For companies in general, Serra says “give me one number: total tax paid, where, total number.”  Apple got a frequent airing in the debate but no one ever said how much tax the company paid.  Here are the company’s income statements for the past six years (year-end is September 30th).

Apple Income Statements 2012-2017

Over the past six years Apple has made $64.5 billion in net cash tax payments (equivalent to 18 per cent of pre-tax income).  And Apple have said that they will be paying more tax related to these profits as a result of the recent changes to the US tax code.  Is this where the tax should be paid?  Again, Pascal Saint Amans seems to think so.  And Commissioner Vestager pointed out that her €13 billion ruling against Apple in Ireland would have been lower if the economic value was paid to the US for the R&D activity that takes place there.

Vestager said if Washington chose to tax the profits reported by Apple’s Irish operation, she would reduce her demand accordingly.

The United States could do this by forcing Apple to have its Irish units pay more in fees to Apple in California for the right to license Apple patents.

“If the U.S. tax authority found that the monies paid due to the cost-sharing agreement were too few ... so that they should pay more in the cost-sharing agreement, that would transfer more money to the States and that may change the books and the accounts in the States,” Vestager said.

Does Apple paying $64.5 billion in tax over the past six years and indicating another $38 billion will be paid because of US tax reform mean everything is hunky dory?  Absolutely not.  But if we are going to be outraged, let’s have that outrage based on what is actually happening not some trumped of version designed to engineer outrage.