Richard Cur­ran

Irish Independent - Business Week - - COMMERCIAL PROPERTY -

WE’ VE been to Panama. And now we are tak­ing a trip to Par­adise. It doesn’t look very pretty at all. The mas­sive dump of mil­lions of files re­lat­ing to the clients of in­ter­na­tional law firm Ap­pleby, pro­vides a vast amount of in­for­ma­tion about the busi­ness af­fairs of a large va­ri­ety of peo­ple – from the world’s most prof­itable com­pany, Ap­ple, to ac­tors in ‘Mrs Brown’s Boys’.

The scale and ex­tent of the in­for­ma­tion is so vast that we have to be care­ful about try­ing to de­ter­mine what it tells us and what it doesn’t. It pro­vides in­for­ma­tion but not al­ways in­sight. Anal­y­sis of the pa­pers is as much about choos­ing the lan­guage we use, as it is about un­der­stand­ing the con­text.

Dif­fer­ent peo­ple are do­ing very dif­fer­ent things through the pa­pers. If we want to make any sense of the pa­pers or gain real in­sight, we have to dif­fer­en­ti­ate be­tween sev­eral dif­fer­ent prac­tices.

There is tax eva­sion, which is de­lib­er­ate and il­le­gal. There is tax avoid­ance, where busi­nesses or in­di­vid­u­als struc­ture their af­fairs legally to re­duce their tax bill. There is ag­gres­sive tax avoid­ance where schemes are de­vised, of­ten con­trary to the in­ten­tion of the laws, in or­der to cut tax bills. Some­times th­ese can be deemed to be against the law and in other cases they are con­trary to the spirit of the law, but none­the­less legally wa­ter­tight.

Then there is the me­chan­ics of in­ter­na­tional busi­ness, where peo­ple make in­ter­na­tional in­vest­ments that sim­ply make com­mon prac­ti­cal sense by us­ing tax laws abroad, ex­actly as they were in­tended.

Take Ap­ple for ex­am­ple. It as­serts that it pays all of the taxes that are due on its oper­a­tions and there is no rea­son to doubt this. How­ever, what the Par­adise Pa­pers ap­pear to show is that af­ter the Ir­ish Gov­ern­ment closed down a par­tic­u­lar ar­range­ment in 2014, which al­lowed a com­pany not to be tax res­i­dent any­where, two of three “state­less” Ir­ish reg­is­tered sub­sidiaries shifted to Jer­sey.

Ap­ple went search­ing for the best new struc­ture and made in­quiries with sev­eral Bri­tish overseas ter­ri­to­ries, in­clud­ing the Isle of Man.

It de­cided to lo­cate two of three con­tro­ver­sial Ir­ish sub­sidiaries in Jer­sey. The third com­pany be­came tax res­i­dent in Ire­land and this ap­pears to have in­creased the amount of tax Ap­ple is pay­ing here as a re­sult.

Ap­ple has said the shift to Jer­sey has not in any way re­duced the amount of tax the com­pany was pay­ing to any ju­ris­dic­tion. Quite the con­trary in fact, it may well be pre­serv­ing the sta­tus quo by en­sur­ing Ap­ple pays just as lit­tle in cor­po­rate tax as it did, with the ex­cep­tion of Ire­land, which is now get­ting an in­creased tax take. Ap­ple can le­git­i­mately ar­gue no­body is get­ting less and some­body is ac­tu­ally get­ting more.

The in­sight pro­vided on Ap­ple by the Par­adise Pa­pers is rel­e­vant to the global de­bate on how much technology com­pa­nies in par­tic­u­lar pay in taxes and there­fore it is very much in the public in­ter­est.

It also vir­tu­ally proves the Ir­ish Gov­ern­ment ar­gu­ment all along, that if we change our rules, and some tax haven does not, we sim­ply lose some of the in­vest­ment to an­other ju­ris­dic­tion.

And that is why Ire­land has con­tin­u­ally ar­gued that the best way to deal with this com­plex global is­sue is through the OECD. If coun­tries do not all move to­gether on th­ese ma­jor tax is­sues, one will gain and oth­ers will lose. It is in­ter­est­ing that around the same time that Ire­land closed down this loop­hole, the Ir­ish Gov­ern­ment changed the tax­a­tion pol­icy on in­tel­lec­tual prop­erty held here. In­stead of be­ing able to write off 80pc of the cost of devel­op­ing or ac­quir­ing in­tel­lec­tual prop­erty (IP) against tax over a num­ber of years, com­pa­nies could write off 100pc of it.

This re­sulted in the flood of €300bn worth of in­tel­lec­tual prop­erty shift­ing to Ire­land, and the sub­se­quent ‘Lep­rechaun Eco­nom­ics’ ef­fect it had on our GDP growth fig­ure. In the Bud­get last month, af­ter the IP had all landed in Ire­land, Fi­nance Min­is­ter Paschal Dono­hoe brought it back to 80pc again on fu­ture IP shift­ing, but not on the €300bn al­ready here. Ap­ple’s €13bn tax bill, which the Euro­pean Com­mis­sion says it owes to our Rev­enue Com­mis­sion­ers, is just eight weeks’ prof­its for a com­pany that is mak­ing €1.6bn per week.

This is the scale of what it at stake. It has noth­ing to do with il­le­gal­ity or break­ing rules. In fact it is more about how states com­pete with each other us­ing tax­a­tion pol­icy to win the in­vest­ment of gi­ants like Ap­ple.

But else­where in the Par­adise Pa­pers there are to­tally dif­fer­ent things go­ing on. Bono is iden­ti­fied as hav­ing used a Malta-reg­is­tered com­pany to in­vest in a Lithua­nian shop­ping cen­tre. The U2 front­man has pointed out that he was a mi­nor­ity in­vestor in a com­pany that was reg­is­tered in Malta.

It seems in­nocu­ous and un­der­stand­able to use this kind of struc­ture. It ap­pears to be part-and­par­cel of how peo­ple make in­ter­na­tional prop­erty in­vest­ments. Should it be any dif­fer­ent? That is a ques­tion that goes be­yond even Bono, and moves into the realm of global tax­a­tion and the rights of coun­tries to have dif­fer­ent rules in how tax is ap­plied. Who are we in Ire­land to ar­gue with the ap­pli­ca­tion of dis­tinc­tive na­tional rules when we have built an en­tire econ­omy on them?

Bono, Malta and Lithua­nian shop­ping cen­tres makes a good head­line, but not much more than that. Should Bono or those who man­age his money, not struc­ture an in­ter­na­tional prop­erty pur­chase in a way that is to­tally in keep­ing with what the tax codes in those coun­tries are try­ing to achieve?

Where does the term tax avoid­ance be­gin and end? If I have a le­git­i­mate busi­ness ex­pense, then am I en­gag­ing in tax avoid­ance by claim­ing that ex­pense against my taxes? Surely not.

But else­where, the Par­adise Pa­pers throw a light on how some peo­ple are us­ing decades-old tricks to cut their tax bills in a way that is con­trary to the in­ten­tions of the tax code and may also be il­le­gal tax eva­sion.

Set up a for­eign trust which be­comes the owner of your as­sets. In­struct the trust to buy a villa, a boat, £200,000 worth of fine wines (as one in the pa­pers did) and you can ar­gue that you are not the owner or ben­e­fi­ciary. Then it be­comes a com­plex bat­tle for tax au­thor­i­ties to es­tab­lish you are in ef­fect the owner.

An­other one is to place in­come in a for­eign com­pany, and bor­row money from that firm. The money you spend is not in­come but loans from a for­eign com­pany. This is a vari­a­tion of a very old tax trick which was used by Ir­ish peo­ple in the Ans­bacher, NIB and Liecht­en­stein cases of high net worth in­di­vid­u­als dodg­ing tax.

Rev­enue now has much greater pow­ers and ac­cess to more in­for­ma­tion to take a good look un­der this kind of rock. The prob­lem re­mains in find­ing which rocks to look un­der. That is about re­sources and ex­per­tise.

The Par­adise Pa­pers do throw light on mat­ters of public in­ter­est but also catch what is pretty ob­vi­ous long-es­tab­lished, and quite public in­ter­na­tional busi­ness prac­tice, in the cross­fire too.

Down­right tax dodge schemes ap­pear to be drift­ing off to more ex­otic and riskier havens in the In­dian and Pa­cific Oceans. They used to be in the Isle of Man and Switzer­land. But the tax avoid­ance in­dus­try is still a main­stay of so many Bri­tish overseas ter­ri­to­ries, from Jer­sey to Ber­muda.

The Bri­tish econ­omy has ben­e­fited enor­mously from Bri­tain’s role as a ma­jor global player in the wealth man­age­ment in­dus­try through the arm­slength role of th­ese de­pen­den­cies.

Bri­tain can’t call us out on cor­po­rate tax poli­cies while do­ing very lit­tle about the opaque ed­i­fices of th­ese is­lands.

Mean­while, tax­a­tion has be­come a very in­ter­na­tional game. If you want fairer out­comes, then change the rules for all the teams. And make sure some­body gets a red card if they break them.

U2 singer Bono was iden­ti­fied as hav­ing in­vested in a Lithua­nian shop­ping cen­tre through a Mal­tese-reg­is­tered com­pany

Newspapers in English

Newspapers from Ireland

© PressReader. All rights reserved.