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Top French economist Thomas Piketty accuses Ireland of ‘siphoning off’ others’ tax revenues

Remarks were made in response to new figures showing State’s unusually high level of tax revenues

Thomas Piketty says 'nothing serious has been done to fight tax evasion within the EU since 2008'. Photograph: Ed Alcock/The New York Times

Naomi O’Leary
Fri Dec 8 2023 - 11:05

Leading French economist Thomas Piketty has accused the Republic of Ireland of “siphoning the tax base of others” through a tax regime that attracts multinationals to be based in the country.

The remarks were made in response to new figures showing the State’s unusually high level of tax revenues from corporations compared to the size of the population, which were laid out in the Global Tax Evasion Report 2024 by Paris School of Economics research body the European Union (EU) Tax Observatory.

The report showed that Ireland earns €4,500 in corporation tax revenue per capita, which is five times the rate of France or Germany and has multiplied fivefold since 2014.

This is “probably the clearest illustration of the fact that nothing serious has been done to fight tax evasion within the EU since 2008,” Prof Piketty wrote on social media in response to the Irish figures.

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“If anything the situation has deteriorated,” he added. “Ireland is getting an extra month of income by siphoning the tax base of others!”

Fellow economist Gabriel Zucman, one of the co-ordinators of the report, said of Ireland: “It pays off to siphon off profits from all over the world!”

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A spokesman for the Department of Finance said that the research focused on links between profits booked by companies and wages in Ireland which is “misleading”.

“This creates a misleading impression that corporate profits are or should be directly linked to wage levels rather than to the outputs of investment in all income generating activities such as investment in R&D, intangible assets, capital intensive machinery and investment in staff,” the spokesman said in a statement.

“The paper appears to label any such payment as profit shifting which ignores that Ireland has substantive operations with hundreds of thousands of employees working for many of the world’s largest Multinational Enterprises who pay tax on these profits.”

“As a small open globalised economy Ireland is home to many of the world’s largest multinational enterprises operating in sectors with high level of profitability such as pharma and information and communications technology. This results in high financial flows to and from Ireland,” the spokesman continued.

In addition, the spokesman said that Ireland continues to update its tax code in line with international standards and agreements, that it is a “strong supporter” of the BEPs process, and is in the process of implementing the first part of the OECD tax deal

In a foreword to the report, the Nobel-prize winning United States economist Joseph Stiglitz wrote that the findings of the report revealed that the Organisation for Economic Co-operation and Development (OECD) reforms had fallen short of their aims.

This includes the so-called BEPS or Base Erosion and Profit Shifting Initiative, which was intended to prevent multinational corporations from reducing their tax liabilities by moving their profits to jurisdictions with a lower tax rate.

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Since the BEPS initiative was launched “the magnitude of the problem has soared”, Prof Stiglitz wrote, while the OECD agreement to internationally impose a 15 per cent minimum corporate tax rate for multinationals “has been made largely toothless by a series of loopholes and “carve-outs”.

The report said that Ireland and the Netherlands are “the biggest profit-shifting destinations” and that more than $140 billion (€130 billion) was “shifted to each in recent years”.

Ireland and the Netherlands had each accounted for about 15 per cent of profits shifted in 2019, according to the study.

The report stated that multinational corporations were taking advantage of low rates for royalties that are derived from licensing intellectual property, pointing to an Irish tax rate for royalties of 6.25 per cent since the introduction of a patent box regime in 2015.

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Some of the State’s €4,500 in corporation tax revenue per capita “may reflect the relocation of real activities to Ireland”, the report wrote.

However, “a large fraction probably reflects the rise of profit shifting to Ireland, in particular due to the relocation of intangible assets following BEPS, the Tax Cuts and Jobs Act, and the introduction of the 6.25 per cent tax rate”, it concluded.

“Whatever the reason, this increase illustrates how absent tax co-ordination and minimum taxation, tax havens can generate high amounts of tax revenues by choosing very low tax rates.”

The Department of Finance has been contacted for comment.

Naomi O’Leary

Naomi O’Leary

Naomi O’Leary is Europe Correspondent of The Irish Times

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