Par­adise Pa­pers: Ire­land has sold its soul but is get­ting a very good price for it

The Irish Times - Weekend Review - - NEWS REVIEW - Fin­tan O’Toole

Yes, Bono is a hyp­ocrite – but so is Ire­land. Around the world, the U2 front­man is the most in­stantly recog­nis­able liv­ing Ir­ish­man. It is en­tirely ap­pro­pri­ate that he should be both the face of the coun­try and a prime ex­am­ple of its two-faced at­ti­tudes.

He has been an im­por­tant and sin­cere in­ter­na­tional cam­paigner against the se­cre­tive off­shore tax schemes that, among other things, strip very poor economies of des­per­ately needed re­sources.

And, as the Par­adise Pa­pers re­vealed in The Ir­ish Times this week tell us, he is a part­ner in Nude Es­tates Malta Ltd, which in turn owns a com­pany in Lithua­nia called UAB Nude Es­tates 2, which in turn owns a shop­ping cen­tre in the small city of Utena.

As it hap­pens, Nude is also the name of the eth­i­cal beauty prod­uct range co-founded by Bono’s wife Ali Hew­son. Its brand­ing draws heav­ily – as its blurbs boast – on “Ali’s back­ground in global ac­tivism and con­scious fash­ion”, and on “pi­o­neer­ing ethics and progressive think­ing”.

The over­lap in brand­ing be­tween UAB Nude Es­tates 2 and Nude Skin­care is, to say the least, un­for­tu­nate. Nude in­deed: to adapt Bob Dy­lan, even the front­man of U2 some­times has to stand naked.

Bono’s Lithua­nian in­vest­ment may be rel­a­tively tiny (and is of course en­tirely le­gal) but, as Bono the jus­tice cam­paigner is well aware, it sucks him into a highly or­gan­ised sys­tem in which the equiv­a­lent of 10 per cent of global GDP is held off­shore by a species of hu­man­ity that has its own acro­nym: HNWIs, high net worth in­di­vid­u­als.

Like so many big names, from Lewis Hamil­ton to mem­bers of the cast of Mrs Brown’s Boys, from Queen El­iz­a­beth and Prince Charles to Madonna and Ni­cole Kidman, he is drawn, para­dox­i­cally, into a world of lu­cra­tive anonymity, where money nes­tles in shell com­pa­nies with blandly mean­ing­less names, and in face­less foun­da­tions and enig­matic trusts es­tab­lished by low-key lawyers.

And, given Bono’s pro­file as an anti-pov- erty ac­tivist, this makes him fair game for mockery – so long as we ac­knowl­edge that the mockery is also self-mockery, that the de­ri­sive laugh­ter is also at our­selves.

As the Par­adise Pa­pers re­mind us yet again, Ire­land is an im­por­tant part of this global sys­tem in which vast amounts of money are moved into se­cre­tive tax havens, out of the reach of tax au­thor­i­ties in the coun­tries where they are gen­er­ated.

But we are two-faced. When it comes to ideals of global jus­tice we want to be ex­em­plary pioneers of “ethics and progressive think­ing”. When it comes to money, we are con­tent to play our part in a global sys­tem of cor­po­rate and per­sonal tax avoid­ance that robs the poor and fur­ther en­riches those who are al­ready ob­scenely wealthy.

We like to think we care about the places where the streets have no name; but we are plugged in to the places where the names on the brass plates have no sub­stance.

On U2’s Zoo TV tours in the early 1990s, Bono played a sa­tanic char­ac­ter called MacPhisto, a play on the devil Mephistophe­les from the myth of Faust who in­fa­mously sells his soul. It seems an apt metaphor for the Faus­tian bar­gain at the heart of Ir­ish moder­nity.

Tacit un­der­stand­ing

As the State’s ap­peal against the Euro­pean Com­mis­sion’s rul­ing that Ap­ple owes it ¤13 bil­lion plus in­ter­est has shown so dra­mat­i­cally, there is tacit un­der­stand­ing: Ire­land ben­e­fits from in­vest­ment by some of the world’s most suc­cess­ful cor­po­ra­tions but in turn it does not ask too many ques­tions about the global con­se­quences of cor­po­rate tax avoid­ance on a stag­ger­ing scale.

Stag­ger­ing is no ex­ag­ger­a­tion. In 2003, less than a year be­fore its ini­tial pub­lic of­fer­ing, Google US trans­ferred its search and ad­ver­tis­ing tech­nolo­gies to Google Hold­ings, a sub­sidiary in­cor­po­rated in Ire­land, but which for Ir­ish tax pur­poses is res­i­dent in Ber­muda.

Ever since, all the prof­its gen­er­ated by these as­sets have ended up, af­ter a (tax-free) de­tour via the Netherlands – the in­fa­mous “dou­ble Ir­ish Dutch sand­wich” – in Ber­muda where the cor­po­rate tax rate is zero. In 2015 alone, Google’s par­ent Al­pha­bet re­ported $15.5 bil­lion (¤13.6 bil­lion) in prof­its “earned” in Ber­muda. Mean­while, in the same year, Google Ire­land Lim­ited re­ported rev­enues of ¤22.6 bil­lion, on which it paid all of ¤47 mil­lion in tax.

Un­der pres­sure on tax avoid­ance, the State moved in 2014 to close off the no­to­ri­ous “dou­ble Ir­ish” and wants to be seen to be at the fore­front of in­ter­na­tional ef­forts to bring some trans­parency to the global tax avoid­ance sys­tem. But it is clear from the Par­adise Pa­pers that this is be­ing done in a way that al­lows the gi­ant cor­po­ra­tions to find other ways to avoid tax.

The then fi­nance min­is­ter Michael Noo­nan, even as he was an­nounc­ing the Ir­ish re­forms, slipped in a pro­vi­sion that com­pa­nies in­cor­po­rated in Ire­land be­fore the end of 2014 that were be­ing run from tax havens could con­tinue with the old (and in­fa­mous) ar­range­ments un­til De­cem­ber 31st, 2020.

Tax haven

Ap­ple was thus in ef­fect given no­tice by Noo­nan that it should find a suit­able tax haven be­fore the end of 2014. The Par­adise Pa­pers show Ap­ple, hap­pily fore­warned, ac­tively looked for a new way to con­tinue its old prac­tices as early as March 2014, more than five months be­fore Noo­nan made his an­nounce­ment of re­forms in the bud­get speech in Oc­to­ber. Be­fore the end-of-year dead­line, Ap­ple was able to move the man­age­ment of its two most im­por­tant Ir­ish sub­sidiaries to Jer­sey.

Ire­land is by no means alone in fa­cil­i­tat­ing this kind of mas­sive tax avoid­ance. Es­sen­tially six Euro­pean Union coun­tries – the oth­ers be­ing Lux­em­bourg, the Netherlands, Bel­gium, Malta and Cyprus – are ac­tive part­ners in al­low­ing multi­na­tional cor­po­ra­tions to siphon off a to­tal of ¤350 bil­lion in EU prof­its ev­ery year into havens.

We also have to re­mem­ber that most of these havens – such as Jer­sey, Ber­muda, the Isle of Man, the Vir­gin Is­lands and the Cay­man Is­lands – are Bri­tish pos­ses­sions or ter­ri­to­ries. Bri­tish tut-tut­ting about Ire­land’s sins is yet an­other ex­er­cise in hypocrisy.

But we can­not deny that Ire­land is the big­gest na­tional win­ner in this game in which so many other coun­tries lose much-needed pub­lic rev­enue.

Our cor­po­ra­tion tax (CT) rate may be low in prin­ci­ple (12.5 per cent) and even lower in prac­tice. But the sheer scale of the fi­nan­cial flows means that even a rel­a­tive small stream di­verted from this vast tor­rent pro­vides vi­tal ir­ri­ga­tion for Ire­land’s pub­lic fi­nances. The yield from CT in 2015 was ¤6.87 bil­lion, which was more than ¤2.2 bil­lion higher than 2014. Re­ceipts in­creased again in 2016 to ¤7.35 bil­lion. The vast bulk of this money – about 82 per cent – comes from the very large for­eign-owned multi­na­tional cor­po­ra­tions.

There is a para­dox. Us­ing 2015 fig­ures for com­par­i­son, Ire­land comes out as hav­ing an ex­tremely low cor­po­rate tax rate – our 12.5 per cent rate is al­most ex­actly half the OECD av­er­age of 24.9 per cent. But Ire­land nev­er­the­less takes more of its over­all taxes from cor­po­ra­tions.

In 2015, CT made up 11.4 per cent of Ire­land’s over­all tax take. That’s over twice as much as coun­tries like Ger­many, France, Aus­tria and Den­mark, and far higher than the OECD av­er­age of 7.7 per cent.

To put this in con­text, the in­crease of ¤480 mil­lion in CT re­ceipts be­tween 2015 and 2016 alone is roughly equiv­a­lent to the en­tire amount of money Paschal Dono­hue had to play with go­ing into this year’s bud­get. The ¤7.35 bil­lion CT yield for 2016 is al­most the same as the en­tire pro­jected cap­i­tal bud­get for the State when it rises to its hoped-for level of ¤7.8 bil­lion in 2021.

Mock­ing Bono

And this is why it is too easy just to mock Bono for hav­ing dou­ble stan­dards. Ire­land as a whole is in­creas­ingly ad­dicted to the tax rev­enues it gets from multi­na­tional cor­po­ra­tions and the price it pays for that drug is al­low­ing those same cor­po­ra­tions to di­vert much larger tax rev­enues away from other coun­tries. This in­cludes in many cases ex­tremely poor coun­tries who are rav­aged by the global sys­tem of tax avoid­ance from which we ben­e­fit.

Ire­land’s MacPhisto bar­gain is in­sid­i­ous be­cause we sold our soul but are get­ting a very good price for it.

We have a big stake in prac­tices that are morally in­de­fen­si­ble, so­cially dev­as­tat­ing and, be­cause they con­trib­ute to gross in­equal­ity, en­vi­ron­men­tal de­struc­tion and po­lit­i­cal in­sta­bil­ity, ul­ti­mately un­sus­tain­able.

That in­duces a kind of moral ver­tigo in which it is hard to ac­knowl­edge that the world must and will move on from this ra­pa­cious sys­tem, with or with­out us.

‘‘ Given Bono’s pro­file as an anti-poverty ac­tivist, this makes him fair game for mockery – so long as we ac­knowl­edge that the mockery is also self-mockery

It is too easy just to mock Bono for hav­ing dou­ble stan­dards. Ire­land as a whole is in­creas­ingly ad­dicted to the tax rev­enues it gets from multi­na­tional cor­po­ra­tions

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