The Irish establishment are at great pains to convince the public that the Southern state is not a tax haven. In their recent book Tax Haven Ireland, Kieran Allen and Brian O’Boyle puncture this myth. This interview with Kieran Allen appeared first in a Czech online publication, Voxpot.
What made you write this book?
One evening I was sitting at home, watching the television and saw the CEO of one of Ireland’s great financial institutions. The same person had previously headed the tax office. So he switched from overseeing the tax corporations pay to working for a similar corporation. Moreover, during that television appearance, he basically thought the poor and working people should not want very high wages. That made me incredibly angry, so I thought my colleague Brian O’Boyle and I would write this book.
Your book is called Tax Haven Ireland. Why do you argue that it makes sense to talk about Ireland as a tax haven?
Just to clarify – Ireland has an official corporate tax rate of 12.5% and has long been known in Europe as a low tax country. But that 12.5% has always been just a headline number. In fact, you have to look at what is counted as “taxable profits.” In the end, most corporations paid 5-6%.
This was true for many years, but then there were several scandals. It turns out that Apple and others do not even pay 2% in taxes. Google paid its profits to the Netherlands and on to Bermuda. This was quite a scam, so the government introduced a new measure in response. Under these measures, you can only pay 6.5% in taxes if your company operates in the field of intellectual property. Once you include the expenses – and in the area of intellectual property, the expenses are easy to handle – it gets even lower. That is why, in my opinion, Ireland can be described as a tax haven.
Most people use this phrase to attack the islands in the Caribbean. But Ireland is another type of tax haven. How can we differentiate between these countries?
First, we can differentiate according to the part of the world in which they serve rich people. So, for example, Singapore will primarily serve the rich in Asia. Then we have tax havens that are tailored to individuals. In contrast, Ireland serves mainly corporations – specifically the American ones. In addition, it is a respected tax haven because Ireland does not have as bad a reputation as the Caribbean. So if you are an American corporation that cares about its public image, you prefer Ireland.
What brought American corporations to Ireland?
With the emergence of the European single market, they needed to get to Europe to export here. In Ireland, English is spoken, which is an advantage, of course, but on the other hand, it is also a peripheral country on the very edge of Europe. But more importantly, Irish lawmakers wrote legislation tailored to American companies. Today may sound surprising, but the United States used to pay a relatively high corporate tax, 35%, which also applied to profits from abroad. But then the US introduced an option that allowed corporations to avoid that rate. The Irish authorities have read the law carefully and written the laws exactly to fit this particular loophole.
Land of Giants and Blackouts
Could you tell our readers about the Apple case and the ensuing lawsuit between Ireland and the European Commission, which ended up in an EU tribunal?
Apple came to Ireland around 1980 as one of the last companies to benefit from the lowest rates. When that changed, they negotiated with the Irish state to continue paying 2%. Sometime after 2000, however, they said that this was too much and asked for a further reduction. Since then they have paid less than a percentage of their income in taxes. In 2013, the US Senate began to address this and the Apple CEO Tim Cook was questioned in the Congress about it. The European Commission then began an investigation, which obtained correspondence between Apple and the Irish tax authorities. On that basis, the commission decided that Apple owed the Irish state €13 billion in taxes.
Any normal government that is not just a servant of a corporation would take that money. But the Irish appealed the decision, hired top lawyers, and in collaboration with Apple, they won the appeal, so Apple doesn’t have to pay anything to Ireland. The argument that used to win the dispute is also remarkable. The Commission claimed that Apple had received special treatment and benefited. But Ireland defended itself by saying it didn’t favour anyone. This is to some extent true – other companies have really paid such low taxes.
Besides Apple, other technological giants are based in Dublin. In the West, we have seen a change in the narrative surrounding these companies in recent years – they are no longer celebrated as innovators, but on the contrary, we can read about the Facebook or Google scandals in the media almost every day. Is this change of attitude going on among the people in Ireland?
I think people’s attitudes never have just one dimension. So, on the one hand, the Irish may be happy that these companies bring jobs, but at the same time they may be dissatisfied with how Facebook handles their data. These views are not mutually exclusive. Energy has a much more fundamental impact in this regard. Technological giants are creating data centres in Ireland that are expected to consume up to a third of Ireland’s electricity by 2030. This has led to black-outs in some parts of Dublin. I’m not talking about short outages – some parts of the city were left without electricity all day. And of course people don’t like that.
On the other hand, these companies have great “soft power”. Google, for example, presents itself as a diverse company where you can have fun, go to yoga and dine on great Asian cuisine. It thus maintains the reputation of a good employer, which is why about 3,000 people work there.
The European Union: An Accomplice or a Watchdog?
Last fall, nearly 140 countries in the world agreed to impose a global corporate tax of 15%. The agreement came from OECD countries, and in the end Ireland agreed. Why did Ireland agree when it currently has this rate at 12.5%?
Irish elites rely on offering a tax haven with a recognised reputation. So when they saw that the OECD was moving towards 15%, they did not want to go against the flow, because it would condemn them to the position of Bermuda, a tax haven with a bad reputation. Second, they hoped that Republicans in the US Congress would block that pressure for 15%. But that didn’t happen in the end, so they had to change their strategy. So they said it was better to be inside the negotiating room than to stay outside the door.
Thanks to this, they were at least able to have words omitted from the agreement. Originally, the resolution was supposed to state that global corporations should pay a tax of “at least 15%”, but in the end only 15% remained. And the second thing they get out of it is that they can influence the most important question, which is: 15% of what? Will it be 15% of all profits, or 15% of “taxable profits”, the amount after you deduct all possible costs? Ireland therefore hopes that even after the introduction of this rate, it will be able to leave companies enough expenses, thanks to which companies will pay much less in tax in the end.
You have already mentioned the handling of expenses. Could you describe how this works?
This is a very complicated process, but I will try to give one example of how it can go. Let’s say you make €1 million. If you find enough expenses, then it will not be a million, but only a quarter of a million. Where do you get these expenses? One option is to borrow money from which you have to pay interest. You can then deduct this interest from the tax as an expense.
Corporations often do this by borrowing on their own. You have a branch in Ireland, but you can borrow from a branch in the Czech Republic, for example – although it is more likely to be from a branch in Luxembourg – and you charge your Irish branch very hefty interest. This will reduce the amount from which your Irish tax is calculated. And why do you borrow from the Luxembourg branch? Because there are again low taxes on the income from these interest loans. So if you know how to play this game well, you can significantly reduce the amount from which the tax is ultimately calculated.
So this practice is legal. In the book, you intentionally use a slightly different vocabulary to describe these practises. Can you explain why?
There are usually two terms. Tax avoidance means what I have just described. You took advantage of every loophole and counted every expense, but perfectly legally. Then there is tax evasion, which indicate when you avoid paying taxes illegally. We intentionally do not use any of these terms – instead we are talking about tax dodging. In the book, we also describe, among other things, how corporations basically write laws tailored to suit themselves. Therefore the division between illegal escapes and legal circumvention does not make sense.
Ireland is far from the only EU country known for low taxation. In addition to the already mentioned Luxembourg, we also have the Netherlands or Cyprus. Is it that these states compete with each other for the corporations that can be based with them?
The example with Luxembourg shows that it is not. It is a comprehensive network spread across several countries, used by corporations to avoid having to pay taxes. I don’t know much about Cyprus, but in addition to the countries you mentioned, Western Europe has a few small islands around Britain, all connected to the City of London. The Netherlands, in turn, is being used to transfer money to Bermuda, for example. Luxembourg allows the trick with interest rates. But there is one more interesting thing about this country.
Former European Commission chief Jean-Claude Juncker was previously Luxembourg’s prime minister and finance minister for 25 years. At the same time, the Panama Papers revealed that when corporations wanted to relocate there, Juncker secretly met with them and offered them “advanced agreements”, which ultimately resulted in them paying less than 2% in taxes.
With the Juncker case, the question arises: Do you think Brussels is really trying to do something about tax havens within the EU? On the one hand, there is Apple’s investigation by the European Commission or European Parliament resolutions condemning Ireland’s practises. On the other hand, things continue on track…
In terms of taxes, the EU is now really pushing for a 15% increase in corporate taxes. The first reason is that, to a certain extent, they must take into account the feelings of the population. And a lot of people around the world see how much money Apple makes and how much they pay. So the EU must at least be seen to be doing something about these corporations. Secondly, there is something that one author called the fiscal crisis of states. They had to pay huge sums during the pandemic just to overcome Covid-19. So in France and Germany, they say they need to pay at least some taxes – and why should everything be paid in Ireland? So there is some effort here, but it is very complicated.
In my opinion, the EU is not as liberal and progressive an institution as it likes to portray itself. Everyone may have talked about Trump and his walls, but look at what the EU is doing in the Mediterranean or on the border with Belarus.
The second example is from the history of Ireland. Irish women have not had access to abortions for a long time. As Ireland was a member of the EU, they argued that if abortions are treated as healthcare in other countries, this should be the case in Ireland, according to equal access to healthcare enshrined in European legislation. Because the EU needed to approve the Maastricht Treaty in 1992, it accepted an exception that this equal treatment did not apply to abortion. This shows that they do not care so much about human rights. The EU is mainly about money and support for large corporations.
Financialisation & Hegemony
The International Financial Services Centre (IFSC), founded by the Irish government in the 1980s, played a key role in Ireland’s transition to a tax haven, and in the book you call it the largest shadow banking centre in Europe. What exactly does this mean?
One of the key features of global capitalism is the rise of financialisation that began in the 1980s. This means that most of the economy revolves around financial instruments, essentially speculation. Take, for example, food. What will be the price of wheat in 2025 in Chinese yuan? You can bet on this – buy wheat today, which will be available in 2025. It’s basically gambling, like betting on horses, but on a much larger scale. It’s a risky business, but you can make a lot of money.
When you look at the bank, you see massive columns, a large atrium, in short, a majestic and solid-looking building. In fact, it is a much riskier business. When a bank wants to engage in risky speculation, it needs some barrier between this risky activity and the normal activity of saving and lending money to people. Therefore, these shadow banks, which are unregulated, have set up separate companies with no direct impact on their day-to-day operations.
The financialisation of the economy is part of the wider changes in economies around the world in the 1980s, which are collectively referred to as the rise of neoliberalism. Was Ireland’s transition to a tax haven a response to this transformation?
Until the end of the 1960s, we had a relatively interventionist state here, which had state-owned companies for electricity or oil and was trying to create a mainly national economy. Ireland this up a little earlier than other countries. Neoliberal ideology began to take off after the oil crisis of 1973, but the Irish state became servile to multinational corporations a few years earlier. But neoliberalism provided the Irish project with the necessary discourse, arguments and political framework. Suddenly it can be justified by all those ideological lessons: the state does not have to be too involved in the economy; it does not have the power to tax; untaxed wealth will somehow trickle down to the people…
In Ireland, this belief persists to this day, with the Irish elites perhaps some of the most devoted adherents to neoliberal ideology. Let me give you an example – now during a pandemic, people are required to do antigen tests. But the government says we definitely can’t subsidise the tests or give them away for free, the market has to decide, because it will solve everything best, and in the end it will get the price down. How do you think it turned out? The exact opposite happened and prices continued to rise. In the end they had to compromise and provide free antigen tests to close contacts. But it shows how well the Irish elites trust the free market.
Co-author Brian O’Boyle mentions in an interview that every young child in Ireland knows that the corporate tax rate is 12.5%. In the book, you also point out that the mainstream Irish media are very pro-market, only celebratory stories are written about billionaires. Does the rest of society buy into this, or are there some segments that do not agree with the tax policies?
It is an example of hegemony, as Gramsci wrote about it. There is a dominant view that Ireland must keep corporate rates low. I have been arguing against this for years, but until recently I was part of a small minority.
We must keep in mind that Ireland has a population of around 5 million and a quarter of a million people emigrated from the country in the 1980s alone. One sociologist called Ireland a warehouse for emigration – people from Ireland always left. So the thought processes look something like this: We need jobs here, or we’ll have to emigrate to the US, Australia, or somewhere else. And given our colonial past – because we have suffered so much under British rule in the past – we have the right to do so this way with low taxes. Until recently, this view prevailed – about 95% of the population agreed with it. And this was hammered in from an early age, almost like brainwashing.
Are you noticing any changes lately?
When we used to try to persuade people, I usually argued something like this: You work, and no matter how poorly you are paid, you still have to pay 20% income tax. But the corporation pays 12.5%. Why does a cleaning lady who goes to the Google offices every morning have to pay 20%, but Google doesn’t pay even 5%? When I used this moral argument, people mostly agreed that it wasn’t right, but then they always said we needed jobs, so we had to let corporations do what they wanted.
But then I adjusted my argument a bit and started saying, Okay, so you agree with 12.5%. But then we should make sure that they stop all those imaginary expenses and pay at least this minimum. And because people are so indoctrinated by the 12.5%, it worked. Then came the European Commission’s investigation, the Google scandal… So there are some changes, but the vast majority of people still support the 12.5%. The fact that the largest left-wing party, Sinn Féin, does not want to raise this rate also testifies to how deeply this is ingrained.
You mentioned that sometimes the Irish past under British colonial rule is used as an excuse for current tax practises. But there is another influence of Britain that could push Ireland on the path to a tax haven. In the book, you write that the Irish elites are focusing on real estate and speculation rather than creating their own industry. How do these two phenomena relate to each other?
You have a great history of industrialisation in the Czech Republic. In contrast, Ireland is a country that has been colonised for centuries and has a weak capitalist elite on a global scale. It does not have enough capital to be able to set up their own steel mills or car companies. And they don’t want to drown their money in industries in which they have to compete with British companies that began the industrial revolution as early as the 18th century.
Thus, they needed to find some safer form of investment. Real estate has several advantages, for example, it is difficult to import cement due to its weight. That’s why, for example, one of Ireland’s largest corporations produces cement. Second, the value of real estate can be easily influenced through political decisions. When the local town hall changes the zoning plan and your land changes from residential to commercial, the value of your property increases.
The Global Cost of the Tax Haven
What are the implications of Irish tax practises for the rest of the world?
Ireland is helping corporations to dodge taxes around the world. This money could be used to finance quality public services for the poor. If we take the United States, for example, their public education is lousy. And partly because, thanks to Ireland, local corporations don’t have to pay taxes. But it’s not just the United States. The tax practises of the Irish state contribute to the robbery of the world’s poorest countries. Oxfam estimates that developing countries lose $100 billion a year due to tax dodging. According to the OECD, this is several hundred billion. Poorer countries are much more dependent on corporate tax and, moreover, do not have a developed welfare state, so all budget losses affect people much more.
And what about the implications in Ireland? Some might think that at least the people in Ireland are doing well…
As for Ireland, it is a bit more complicated. On one hand, it seems that there are a lot of companies in Ireland, so even from those low taxes, a lot of money comes to the country. But the problem lies in the ideology that goes hand in hand with the policy of a tax haven. According to this ideology, you are not entitled to proper public services.
So when it comes to schools, for example, Ireland has the worst teacher-pupil ratio in all of Europe. If you want to send your child to a crèche in Dublin, you pay €1,000 a month. Public transport is very expensive. When I need hip surgery, I’ll wait about three years. We have the third smallest number of hospital beds per capita of all OECD countries.
So the ideology that corporations have no responsibility for society and therefore do not have to pay taxes ultimately means that even if enough money flows into the country, that money is not used for public services for people. At the same time, money has to be taken into the budget somewhere, so labour taxation is relatively high. As a working person, you pay relatively enough in taxes, but you get public services at a terrible level for it.
In the book, you also write about how corporate influence undermines Irish democracy. What does this look like?
An example is the EU’s proposal for a speculation tax, which should be 0.2% of any such financial transaction. 11 EU countries are in favour, Ireland is against. There is a commission at the Department of Finance to which members of large corporations and banks are appointed. And this commission advised the government to reject the speculation tax. It is not a secret influence, that influence is already built into the institutions. Taoiseach Micheál Martin even boasts that the state has no disagreements with corporations. Thus, people can vote for different political parties, but these background processes cannot affect them in any way.
A separate chapter is the housing crisis, which we are feeling here in the Czech Republic, but in Ireland it is even greater. In addition, Ireland is home to huge investment funds that buy real estate around the world.
Yes, one of the largest global real estate funds paid exactly €250 in taxes on year. At the same time, these investments also affect people in Ireland directly. After the financial crisis, the real estate market, where Irish billionaires traditionally have investments, collapsed. The Minister for Finance therefore flew to the US, where he had about 16 meetings with representatives of real estate investment funds, during which he invited them to enter the Irish market. So after 2013, the arrival of large investors who bought real estate and then rented it out to people who lived in it was purposefully supported. This has re-launched the real estate market, the property of the Irish elites has not lost value and is being paid for by people who pay huge rents.
How to get out of this situation? Do you believe in an international solution that would end tax havens everywhere, including Ireland?
It is often said in the debate in Ireland that we cannot do anything on our own until the event is international. So we have to wait for the OECD, wait for the US, wait for the EU… But in the end, we come to the conclusion that we have nation states that agree with the practice. This will sound very old-fashioned, but in solving the problem of tax havens, we must also talk about individual states that must be willing to radically change course and break out of what the American author Thomas Friedman calls the golden bonds.
It may seem naive to some, but I think it’s just the opposite. It would be naive to wait for all states and international organisations to agree and do something about tax havens. We must try to fight tax havens in whatever country we are in.
So how should this break from the golden shackles take place in Ireland?
It should be borne in mind that Ireland has essentially 100 years of right-wing rule. We have two parties that take turns in government, but they are basically indistinguishable. So, first of all, we need a left-wing government, which we could have after the next election. The new government should admit that we have a huge social crisis here in the form of Covid-19. To do this, we simply need those huge companies to pay taxes. Some of those companies may leave, but certainly not all, and certainly not from day to day, as they try to scare us.
In addition, a state that is willing to intervene in the economy will be needed. It will have some state-owned enterprises, and will invest in the emergence of new industries. In Ireland, we have a relatively large pharmaceutical industry that produces patented drugs. But we know that so-called generic drugs are needed all over the world. And it is these that could be targeted by Irish industry, which will not depend on multinational corporations.
Last but not least, it is clear that any left-wing government that takes this seriously would face enormous pressure from elites across Europe, as Syriza experienced in Greece. That is why the government must also be prepared to say on the international stage: We are serious, we will make them pay. And if they don’t want to pay, we will take over the corporations and build a different type of economy.