Ireland accused of facilitating tax avoidance by European banks

Ireland has been accused of facilitating large-scale corporate tax avoidance by European banks. A report by Oxfam and the Fair Finance Guide International said a "disproportionate" amount of profits generated by these institutions are being booked through Ireland. The research found 16 of Europe's 20 biggest banks had reported profits here in 2015. It said these banks had generated €2.3 billion in profits in Ireland on €3 billion of turnover. That equates to a profitability rate of 76 per cent, four times higher than the global average. Only the Cayman Islands had a higher average profitability rate at 167 per cent.

Responding to the report, the Department of Finance said it rejects any allegations that the State is a tax haven. In a statement, it said: “Ireland does not meet any international definition of being a tax haven. We only have and want real substantive foreign direct investment, the kind that brings real jobs and investment into Ireland. Ireland is also fully compliant with all international best practices in the areas of tax transparency and exchange of information.”

The report said Ireland appears to be “a very productive location” for European banks with just the Cayman Islands, Curacao and Luxembourg having a higher average profit per employee.

An average employee in Ireland generated €409,000 in profits in 2015, more than nine times the average for employees worldwide.

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It pointed to Spanish bank BBVA Compass as an example. That bank’s employees generated on average a profit of €33,000 each, but its average employee in Ireland generated €6.8 million, which is more than 200 times as much.

The 16 top European banks operating in Ireland examined by the report paid an average effective tax rate in Ireland of no more than 6 per cent , half the statutory rate of 12.5 per cent, with three banks (Barclays, RBS and Crédit Agricole) paying no more than 2 per cent.

Oxfam said countries were being denied large amounts of potential tax revenue by corporate tax avoidance.

This was contributing to inequality and poverty with governments forced to decide between increasing indirect taxes such as value-added tax (VAT), which are paid disproportionately by ordinary people, or cutting public services, which hits the poorest hardest.

It also said increased profits as a result of lower corporate taxation benefit wealthy companies’ shareholders, further increasing the gap between rich and poor.

“The massive profitability levels of European banks in Ireland suggests that large profits may be reported in Ireland as a tax avoidance strategy,” Oxfam Ireland’s senior policy and research co-ordinator Michael McCarthy Flynn said.

“This is creating little additional benefit to the Irish economy and tarnishing Ireland’s reputation,” he added.

Oxfam’s report suggested tax havens accounted for 26 per cent of the profits (an estimated €25 billion) made by the 20 biggest European banks but only 12 per cent of banks’ global turnover and 7 per cent of the banks’ employees.

This was out of proportion with the real level of economic activity that occurs in these jurisdictions.

While there may be legitimate business reasons for booking high profits in some cases, the report suggests that discrepancies may have arisen because some banks are using tax havens to avoid paying their fair share of tax, to facilitate tax dodging for their clients, or to circumvent regulations and legal requirements.