Blog
The truth about the 2% tax rate and the Double Irish
Its often that one hears two conflicting stories, even more so often in the world of establishment politics. This time though, it’s a bit more serious. Apple, the major multinational which can claim to have profits bigger than most countries, has claimed in a US Senate hearing that it received a special tax agreement with the Irish government in the 1980s, an agreement that would see Apple pay 2% tax in return for setting up an enterprise in Ireland as part of their plans to expand into the European market. Enda Kenny though, denies that the Irish government ever made such a deal, refuting that Ireland “does not do special tax deals with companies.” So who’s telling the truth?
There are obviously two very different tales being told by Apple and the Taoiseach about the supposed 2% corporate tax rate promised to Apple in order to entice them to Ireland. The fact is that Apple are not even paying this 2%. Apple has recorded profits of 17 billion euro, but has only paid 8 million euro in tax, a meagre 0.05%. This only furthers delves intot he question, how are Apple being allowed to get away with so much tax avoidance?
Either Apple or the Taoiseach is not telling the full truth. What seems most likely is that an agreement was made with Apple, not to create a new tax rate of 2% for Apple, but instead to make arrangements to enable Apple to benefit from the so-called ‘Double Irish’ tax scam and effectively pay 2% tax or less. The “Double Irish” is a method which Apple pioneered in the eighties, in which two companies are set up in Ireland, the first of which is a tax resident in a tax haven such as the Cayman Islands or Bermuda. The first company then signs over valuable intellectual property rights to the second company, and due to Ireland’s difference in intellectual property tax laws compared to the US, the multinational in control of both companies saves itself billions. The process is obviously complicated, and involves much more posturing and meandering of the companies involved, but when billions on are on the line, the multinational will seek it out.
Apple in the late 1980s was central to the creation of this ‘Double Irish’ tax structure. A New York Times article published in 2012 stated:
In the late 1980s, Apple was among the pioneers in creating a tax structure — known as the Double Irish — that allowed the company to move profits into tax havens around the world, said Tim Jenkins, who helped set up the system as an Apple European finance manager until 1994.Apple created two Irish subsidiaries — today named Apple Operations International and Apple Sales International — and built a glass-encased factory amid the green fields of Cork. The Irish government offered Apple tax breaks in exchange for jobs, according to former executives with knowledge of the relationship.”
‘How Apple Sidesteps Billions in Taxes’, Charles Duhigg & David Kocieniewski, New York Times, 28 April 2012
These so called jobs were meaningless in the end, with Apple Operations International, the second company in the Double Irish scam, having no physical presence in Ireland and zero employees.
This then leaves the burning question, what must be done about this? Apple, The government and Department of Finance should come clean – what involvement did Apple or other corporations have in the writing of the relevant tax legislation? The Taoiseach should clarify immediately whether any agreement was made with Apple along these lines or any other method in order to enable them to minimise their tax liability. On top of this, stricter measures must be taken against tax avoidance. Ireland has been known internationally for its low corporation tax, and this position is now being abused now more than ever. The Corporate Tax rate of 12.5% in Ireland must be significantly increased, and the revenue from this used to pay for a real jobs program which will bring employment back to the island. The use of this revenue cannot be decided from above by establishment parties, but must be democratically planned under workers control and management. This can only be done by breaking with the system of Capitalism, and replacing it with a Democratic Socialist economy and state, which will plan and develop the economy in favour of peoples need, not profit.
Paul Murphy MEP slams Irish Government for creating Tax Haven
· Ireland is a tax haven for Apple, Google and Facebook
· No tax justice here – tears up property tax return in Parliament
Paul Murphy spoke today in the European Parliament on tax havens, slamming the tax system which allowed huge multinationals such as Google, Apple, and Facebook, to take in record profits but pay little back in taxes. The debate comes in the wake of the U.S. Senate Report which stated that Apple had agreed to a tax rate below 2%, well below the average rate of corporation tax in Ireland, of 12.5%. This huge tax gap is only further made stark by the introduction of taxes on the backs of ordinary working people. Paul Murphy concluded his speech by tearing his property tax form in front of the parliament as sign to indicate that he would not be paying the tax, and would continue to resist the tax, and all other “bailout taxes.”
Ireland is considered a tax haven because of its current corporation tax rate of 12.5%, compared to the EU 22.74%. Establishment politicians argue that this low tax rate attracts large multinationals to Ireland, who then go onto create jobs. They fail to account though, for these companies then leaving in times of recession. Low tax rates, while they provide an incentive, are not the only reason multinationals come to Ireland. In reality, these companies, such as Apple or Google, can demand from the Irish government more favourable tax rates, or compensation in other ways. This was most starkly seen in the negotiation for the oil and gas fields off the Ireland’s west coast, in which Shell received a more than favourable deal from the Irish government, including the ability to write off 100% of the costs before they declare taxable profits. This is due to the imbalance of power between the Irish state and the multinationals, many of whom record profits which dwarf Ireland’s GDP. This means that these multinationals will be able to negotiate better deals when they choose and want to.
These huge multinationals wield immense power, including the power to decide when they want or when they don’t want to pay tax, through a tax scam known as the double Irish, where the corporations exist and operate in Ireland, but register for tax in Bermuda. Paul Murphy outlined three stark cases in Ireland.
- Apple Sales International, profits of €17 billion, taxes of €8 million – a rate of 0.05%.
- Google Ireland Limited, profits of €9 billion, taxes of €22.2 million – a rate of one quarter of one percent.
- Facebook Ireland, profits of €1 billion, taxes of €3.2 million – a rate of one third of one percent.
This seriously plays down the posturing by minister Creighton, who was present at the debate, when arguing for the need for tackling aggressive tax planning, tackling tax avoidance, when Ireland itself functions as a tax haven as reported yesterday in the US Senate report. It is even more astonishing that at the same time as facilitating the tax avoidance of the major corporations in the world, the Irish government is engaged in a campaign of threatening to rob the property tax from working people.
Multinationals and major corporations are receiving huge hand outs and allowances from the Irish government, yet that same government is ruthlessly tearing after its own people in the form of the Property Tax, which it has threatened to deduct from wages if unpaid. Ordinary working class people are not responsible for this crisis, and cannot be expected to pay for it. The fight against Property Tax is just one of many struggles, combined with Trade Unions in the Croke Park 2 negotiations and others, which is mounting a sustained opposition to the government and austerity. Instead of allowing multinationals to steal billions from the economy, the Irish government must begin to tax the real wealth in society, the wealth that can get us out of this crisis. This wealth must be used for real public use, under democratic workers control and planning. This can only be done by breaking with the system of capitalism, and replaced with democratic socialism. This will allow the creation of real jobs programs, which will see the replacement of profit with people’s needs.
INTO must vote yes for industrial action
Stability Programme Update proves austerity is for bondholder’s benefit
The release of the latest estimates from the Department of Finance in the Stability Programme Update illustrates in cold figures in whose interests austerity is being implemented. The figures prove that society and the economy are being destroyed so that the bondholders will be repaid.
The estimates indicate that the government will have a primary surplus of almost €1 billion in 2014. In other words that the government will take in around €1 billion more in tax revenue than it pays on public services. So much for the mantra by right-wing politicians, echoed by large sections of the media, that the state is broke and too much is being spent on vital public services.
The deficit exists because the state continues to pay massive amounts of money in servicing national debt. In 2014, this will amount to around €8.5 billion. This turns an estimated primary surplus of almost €1 billion into a deficit of around €7.5 billion. It is time to call a halt to these payments to bondholders – with an immediate moratorium on payments of national debt and payments to bondholders by bailed out banks. The vast bulk of this debt should be repudiated, with a debt audit commission established to ensure those with proven need, such as pension funds and working people, are repaid and that the rich bondholders pay for their crisis.
Notes: Relevant figures available on page 22 of Stability Programme Update. The relevant figures are the ‘Underlying General Government Primary Balance’ (surplus of €945 million) and the ‘Underlying General Government Balance’ (deficit of €7.545 billion). The Department of Finance has previously argued that these figures are more accurate than the ‘Exchequer Balance’ figures, e.g. in Table 1C of the Stability Programme Update December 2009.
In addition to the payments on the national debt included in the Stability Programme Update, around €5.9 billion in payments to bondholders by bailed out banks will also be made.
It should also be noted that the estimates for 2014 do incorporate the imposition of an additional €3.1 billion in cuts and taxes in 2014. The Socialist Party will in the run-in to the Budget 2013 produce a document illustrating a socialist alternative to the imposition of these taxes primarily onto working class people.
EU-US Free Trade Agreement: Race to the Bottom of the Atlantic
Both the recession-ridden EU and US hope that this agreement will help them to trade their way out of the crisis. President Obama, for example, announced in 2010 that he wants to double US exports by the end of 2015. Karel De Gucht, European Commissioner for Trade and arch neo-liberal, argued that such an agreement “is the cheapest stimulus package you can imagine.”
The European Commission never tires of repeating that it is external trade that prevented an economically dire situation in Europe from worsening further. Some voices in the Commission suggest that it is the crisis that makes a deal more likely this time around. In an interview with EUbusiness, De Gucht also said that
“for Europe, the income effects of the deal that we are now trying to achieve should be between 0.5% and 1.0% of GDP, meaning hundreds of thousands of jobs… It brings new customers for our producers, cheaper components for our producers and more competition to make all our companies more efficient.”
Some economists are quoted as saying that such an agreement, which would create the largest free trade zone in the world, accounting for almost 50% of global GDP and one third of global trade, could create two million jobs and boost EU-US trade by more than US$120 billion within five years. Were this to be the case, this message would obviously be welcome on both sides of the Atlantic where unemployment rates are high and jobs continue to be lost as a result of low, stagnant or even negative economic growth. This is aggravated by low demand caused by the brutal austerity policies across Europe.
Around 15 million jobs have been lost in the eurozone and the US since the crisis first hit in 2008. Politicians are therefore eager to come up with a “good news story” in the face of increasing mass anger and resistance against their unpopular policies that destroy the future and livelihoods of millions of workers and young people.
However, if all the trade agreements delivered on their proclaimed benefits, the world would be a much richer place than it is! For example, the North American Free Trade Agreement was promised to bring millions of jobs to the US. A recent study concluded that jobs were actually lost. A sceptical approach to such claims is therefore needed.
“No low hanging fruit”
On 3 March, The Financial Times quotes Max Baucus, Democrat Chairman of the US Senate Finance Committee as saying: “This is a deal that must be done, it must be done now and it must be done right.”
However, despite the general enthusiasm for this agreement, both sides admit that the negotiations will be tough and a ‘positive’ outcome is not guaranteed. For now, both sides’ engagement in the talks amounts to not much more than a formal commitment to free trade and a rejection of protectionism, which is rising as a result of the crisis.
Both sides are known for aggressive trade policies that serve their respective industries and big business; they therefore want the scope of the agreement to be as broad as possible in order to allow enough space for trade offs.
A number of issues have been identified as common objectives. These include the elimination of tariffs, a further liberalisation of services and access to each others public procurement markets – which will also mean the liberalisation and privatisation of public services as multinationals compete for tenders from public bodies. In addition, other issues highlighted include the enforcement of Intellectual Property Rights (IPR), regulatory issues and the elimination of non-tariff barriers. These so-called non-tariff barriers include the target of ‘harmonising’ regulatory standards, including health and safety standards, particularly important in terms of agricultural trade – in order to cut costs. In addition, there are likely to be pushes for strong ‘investment protection’ – to give corporations who invest in either market extra rights.
The elimination of tariffs will probably prove to be the most straight forward issue in the negotiations since tariff duties are already relatively low; 3.5% for EU products entering the US market and 5.2% for goods entering the EU market. It is said that the dismantling of tariffs would mainly benefit the crisis-ridden car industry where tariff duties are still higher than average. Intra-industry or intra-firm trade will benefit most from the elimination of tariffs because a substantial part of the transatlantic trade is made up of intra-company or intra-firm trade (page 3 of the IfO report).
According to the Munich based IfO Institute (Institute for Economic Research), 61% of US imports were sourced from the EU subsidiaries of US companies, and 31% of US exports to the EU were calculated to be intra-industry trade. The Commission claims that tariff elimination would lead to a decrease in prices for consumers, but it will most certainly increase the profits of companies operating on both sides of the Atlantic.
Liberalisation of public services
The key ‘offensive’ interest of European big business is to use the agreement to drive for the liberalisation of public services and the reform of the ‘public procurement’ process – which is the means by which public services are contracted out to private operators. In particular they have ‘Buy American’ requirements at a state level in their sights. The draft mandate explicitly states that “the aim of negotiations on trade in services will be to bind the existing autonomous level of liberalisation of both Parties at the highest level of liberalisation captured in existing FTAs, while seeking to achieve new market access by addressing remaining long-standing market access barriers….” This is the kind of trade jargon that has major European corporations such as Veolia, licking their lips.
US Agri-Business and GMOs
One of the most sensitive items of the negotiations will be agriculture, as both the EU and the US not only have a protected and strong agricultural sector but also have different standards when it comes to food safety.
Michael Froman, Obama’s advisor on the international Economic Affairs Council described agriculture as “the elephant in the room”. There seems to be agreement across the political parties in the US that a deal that does not open up the European market to American agricultural products will be dead in the water.
Max Baucus, Chairman of the US Senate Finance Committee commented,
“the elimination of tariffs will be an important piece of any final agreement. But Congress will not settle for an agreement that fails to address the areas likely to yield some of the most significant economic gains – in particular the elimination of barriers to agricultural trade and ensuring that regulatory processes are streamlined and based on sound science.” (our emphasis).
This wording has rightly rung alarm bells for European consumer organisations, as it is a euphemism for allowing Genetically Modified Organisms (GMOs) and other restricted products entry. At the moment, regulations on GMOs are much less stringent in the US than they are in Europe. Consumer organisations are worried that a softening of standards would allow for more GMO products to enter the European market. The same applies to hormone treated beef and chlorine-sterilised chicken. Given the experience of the recent horse-meat scandal in Europe, it should be clear that a lowering of standards in the interests of agri-business is the opposite to what is needed.
One may wonder if this is one of the “trade offs” Karel De Gucht had referred to when speaking about the negotiations. Will EU service providers get a better deal in accessing the US market in exchange for hormone treated beef entering the EU market?
There are also many other important issues at stake. Mass protests against the threat to internet freedom killed off ACTA (Anti-Counterfeiting Trade Agreement) in the summer of last year and led to an historic defeat for the European Commission. The USA is a signatory to ACTA and already have a more repressive Intellectual Property Rights (IPR) enforcement legislation in place, so we may see ACTA like provisions re-enter by the back door. The same applies to data protection.
Trade union opposition – Workers’ rights at risk
The European Trade Union Confederation (ETUC) has announced that it is aiming to reach a unified position with the American trade union federation, the AFL-CIO, on priorities for the forthcoming trade talks between the EU and the US. In initial statements, both federations have been very cautious in their assessment of the possible consequences of an agreement. However, they fell short of opposing outright a deal.
One of the reasons why the unions do not oppose the agreement from the outset seems to be that they believe an agreement between two developed countries with relatively high labour and environmental standards (compared to those in developing countries) poses less of a risk of undermining those standards. The AFL-CIO explains that “unlike trade with many other regions, increased trade with the EU offers the opportunity to trade with nations that, for the most part, have active labour market policies and strong social safety nets… Increasing trade ties with the EU could be beneficial”. European Voice describes this as “the strongest American labour endorsement of a trade deal in modern times”.
This is not only a far too optimistic assessment of workers’ and trade union rights in Europe, which are under attack as the crisis deepens, but also creates the illusion that a trade deal between the EU and the US could potentially lead to an upgrading of social and environmental standards. This will not happen in the context of these trade negotiations which are dominated by big business interests.
Their interests cannot be reconciled with those of the working class, Also, with the US government opting out of the Kyoto Protocol, the only, albeit entirely insufficient, binding agreement on emission reduction targets, it does not look as if environmental concerns are very high up on the agenda.
Workers’ representatives will not get the chance to sit around the table and determine the conditions and scope of such an agreement that could then genuinely be beneficial and in the interests of working class people, both in Europe and in the US. The agreement is likely to be used to attempt a ‘race to the bottom’ in workers’ wages and conditions, with a vendetta against workers’ and trade union rights in the name of competitiveness and free trade. Trade unions on both sides of the Atlantic should clearly oppose negotiations in which they do not even have a say.
It is true that the AFL-CIO does not give a blank cheque of support to the agreement. They explain that “any US-EU agreement must not be used as a tool to deregulate or drive down these higher standards.” This is correct. In order to counter those dangers, it will however not be sufficient to “follow the US-EU discussions closely”. It will require an active opposition prior to the start of the negotiations and throughout the whole process.
There are a number of important and very concrete issues that were raised and criticised by ETUC and the AFL-CIO which illustrate the pitfalls of such an agreement for working class people. ETUC for example noted that the US has not ratified International Labor Organization (ILO) conventions on freedom of association and trade union practices, which as ETUC correctly underlines, makes “right to work” (read: the right to break strikes) states in the US attractive to EU-based multinationals.
Privileged access to ‘justice’ for corporations
Another, extremely important aspect which both trade union federations raise very legitimate opposition to is the inclusion of an “investor-state mechanism” in a potential agreement. This is included as a goal in the leaked draft mandate.
An “investor-state” mechanism is an investment protection tool that works in the interest of private capital and restricts the ability of a state to determine policy. If for example, a state was to take any actions to threaten the profitability of a corporation, such as the imposition of improved labour or environmental regulations, or the nationalisation of foreign owned companies, an investor-state dispute settlement mechanism allows the corporation to sue the state for lost profits outside of the regular justice system. The potential outcome of this can already be seen in Canada as a result of its involvement in the North American Free Trade Agreement. Currently there is $2.5 billion worth of claims outstanding in cases taken by corporations against Canada, including one for losses as the result of an imposition of a moratorium on fracking in Quebec!
Lack of transparency in trade negotiations
The pursuit of a big business agenda is also reflected in the process leading up to the negotiations and the negotiations itself.
At a Civil Society Dialogue meeting in 2010, shortly after taking office as EU Commissioner for International Trade, Karel De Gucht explained: “My job description is to open new markets for the European industry and the European Services Sector’”. (Corporate Europe Observatory report, Trade Invaders, page 10)
It is therefore not a surprise that corporate lobby organisations like Business Europe directly influence and dictate the trade agenda of the EU. According to Corporate Europe Observatory, a Brussels based NGO:
“Business Europe (BE) is made up of 41 national employers and industry federations and, in its own words, plays ‘a crucial role’ in ensuring ‘that companies’ interests are represented and defended vis-à-vis the European institutions with the principal aim of preserving and strengthening corporate competitiveness.’ While BE is a broad alliance of business across Europe its inner structure reveals it is dominated by the interests of multinational corporations. The Corporate Advisory and Support Group which consists of 60 representatives of multinational corporations plays an important role not only within BE, but in ensuring BE’s contacts with high-level EU officials. (BE is one of the most powerful lobby groups at EU level and is therefore one of the main groups in contact with the Commission.) Due to privileged access to the European Commission it is well-placed to ensure that corporate interests are thoroughly represented in EU policy-making.”
The European Trade Union Confederation (ETUC) on the other hand explained in an article on word trade online that “it and the AFL-CIO, which de facto constitute that labour dialogue between the two partners, have been given little access to advising the Transatlantic Economic Council, unlike the Transatlantic Business Dialogue”.
The close contact of BE with the European Commission means that they have much more power to influence and determine the negotiation mandate for the respective trade agreements. Very often, they are consulted and debriefed before and after every round of negotiations. The strategy is adapted according to their needs. Their access to information is a privilege that even elected parliamentarians can only dream of. Certain MEPs get to see the draft negotiating mandate but those documents are classified as restricted documents and their content cannot be disclosed to the broader public. In meetings between the European Commission and Members of the European Parliament during negotiations, MEPs receive very little information on the content of the negotiations, and at the end of the process, all they can do is vote in favour or against. The content of the deal cannot be changed by a parliamentary process.
The next steps
The European Commission has agreed on a draft negotiating mandate which it has sent to the European Council. It is now up to the European Council to discuss and approve the mandate. Obviously, the European Council is not always one happy family and different Member States – while generally agreeing with the idea of a free trade agreement – may want to change the emphasis and the scope of the mandate. This relates to the different industry interests in the respective Member States, and as a consequence a different emphasis on what sectors should be fully liberalised.
The French government, for example, has already indicated that it wants to maintain the right to a “cultural exception”. This is a mechanism which allows the French government to restrict the number of foreign programmes on French television and radio and also provides subsidies for French film production. In the earlier attempt to negotiate a free trade agreement, the US – on behalf of Hollywood – tried to challenge the cultural exception. So, while there may be some tough talks ahead in the European Council, it is still most likely that a mandate will be adopted which would then allow the Commission to start the negotiations.
The Irish Presidency is extremely enthusiastic about a possible deal and hopes that official negotiations will begin before they hand over the Presidency to Lithuania on 1 July. If that is the case, they will most certainly portray this as an important contribution to their “Jobs, Stability and Growth” agenda they set themselves for the six months of the Irish Presidency. When it was first announced that the EU and US were willing to engage in free trade negotiations, they hoped that negotiations could be concluded within two years. This seems to be utopian. The European Commission has been negotiating agreements with Canada since 2009 and with India since 2007, the deal with Canada is still being negotiated and the deal with India may never materialise. A lot can still change – economically and politically – on a world scale which could call such a deal into question altogether.
Which model of trade?
Very often, socialists and the Left in general are accused of being “anti- trade” when they oppose free trade agreements. Is this the case? Is the Left opposed to a deal that can potentially create two million jobs? Is it true that the Left is opposed to trade in general while – according to the EU Commissioner “trade is an indispensable ingredient of prosperity”?
Let us end this myth. We are not opposed to trade. However, there are different models of trade. The current, capitalist and neo-liberal model of trade is driven by the interests of big business, its “rules” are set and dominated by the giant multinational companies and the governments around the world that serve their interests. According to UNCTAD (United Nations Conference on Trade and Development) “value chains shaped by transnational corporations account for some 80% of global trade”. Globalisation has created an ever more integrated world economy and a division of labour across the globe that is unprecedented in history.
In the context of a capitalist economy that is based on competition and the drive for profit maximisation, this means that trade is not conducted in the interests of sustainable development, an increase in living standards or the environment. Big corporations swarm across the globe to exploit raw materials and energy with no regard for local populations and the environment. They search for cheaper ways of production with no concern for labour standards or health and safety requirements.
Policy makers and corporations try to improve their image by talking about Corporate Social Responsibility (CSR). However, talk is cheap if none of the guidelines on CSR are binding or enforceable. The EU praises itself for taking the lead in negotiating what they call “sustainable development chapters” in every trade agreement, but again, these also need to be seen in the context of competitive disadvantages EU companies may face vis-à-vis their trading partners. Environmental and labour standards and regulations, which come about as a result of pressure from the labour and trade union movement and environmental organisations, are usually higher in the EU. Therefore, occasionally it is in the interests of the European based corporations that agreements contain certain standards in order not to lose their competitive edge. It does not mean that the EU has a sustainable trading policy.
A different model of trade
There is clearly a fundamental lack of transparency with regard to those trade negotiations. That is another reason why we are opposed to this process. We want a trade policy that is run by and in the interests of the majority of the people that produce the gigantic wealth on this planet but have no say on how and in whose interests this wealth is used. We want a trade agenda that applies the highest environmental, social and labour standards as possible and contributes to the development of society and the protection of the environment.
This will only be possible in a society whose structures are completely different. We defend and fight for a society and trade policy where the drive for profit is replaced by drive for sustainable human development and solidarity. A society that is not constantly undermining the foundation of its own existence but uses its wealth, knowledge and technical knowhow to lift people out of misery and poverty, invest in public research to combat diseases, reverse climate change and preserve the environment as a matter of absolute priority.
I am the Socialist Party MEP for Dublin. 
