Ireland is the most profitable country in the world for US corporations, a detailed analysis of global tax havens has found, writes Sean O'Driscoll in New York
The analysis, in the influential US tax journal Tax Notes, found that profits made by US companies in Ireland doubled from 1999 to 2002, while profits in most of the rest of Europe plunged. While Luxembourg showed greater profitability rates for US corporations, Ireland has a much larger "real economy" and produced the greatest profitability.
The report found a huge shift in the movement of capital towards tax havens.
"In low-tax Ireland, for instance, profits of subsidiaries of US multinationals have doubled in four years, from $13.4 billion to $26.8 billion. Profits from operations of US multinationals in no-tax Bermuda have tripled, from $8.5 billion to $25.2 billion. Not surprisingly, those two tax havens rank as the number one and number two locations in terms of profitability for US corporations operating abroad - surpassing long-time leading investment partners like the United Kingdom," the report found.
The analysis, by former US Treasury Department international taxation specialist Mr Martin Sullivan, found that US multinationals made $2.01 profit in Ireland in 2001 for every $1 they made in 1999.
In Britain, US multinational profits dropped sharply to 67 US cents in 2002 for every $1 profit made in 1999. In Germany, profits fell even more dramatically, slipping to 46 cents in 2002 for every $1 made in 1999.
The report analysed the most recent data available from the US Commerce Department.
While US corporations in Ireland were involved in real productivity and the country was only a "semi tax haven", locations such as Bermuda were found to have returns that bore little relation to productivity on the island.
Mr Sullivan described the movement of profits to tax havens as "a seismic shift" in international taxation. He told The Irish Times it was clear that US corporations were locking large amounts of profits in Ireland but it was difficult to assess how much of this money was a result of genuine economic activity in the country, and how much was placed there to avoid US tax rates.
"I haven't attached dollar figures to it because nobody knows the normal rate of return. It's an elusive number," he said.
The report has already caused a considerable stir in Washington.
Mr Bruce Bartlett, a Washington Times columnist and former Reagan administration economic policy official, said that US tax laws needed to be rewritten to stop American companies from receiving tax credit for profits earned and held abroad.