Analyis: Is charitable, model-citizen Ireland impoverishing poorer countries?

It’s comforting to think of Ireland as a model global citizen. Our history of peacekeeping, neutrality and aid work in Africa should stand us in good stead. We don’t pick wars with our neighbours or use threats to get our way. But this week we saw a very different side to how others see us.

Visiting Dublin, Prof Philip Alston, the UN’s special rapporteur on extreme poverty and human rights, delivered a troubling message for policymakers: Ireland is one of a number of states allowing multinational firms to funnel profits out of developing countries, depriving them of billions of euro in much-needed revenue.

He wasn’t taking aim at our 12.5 per cent corporation tax. Instead he focused on a range of loopholes and tax-avoidance schemes, introduced by successive governments, that have allowed companies to take profits from their operations in poorer countries and “launder” them in Ireland.

“This should be seen an anti-social behaviour,” he said. “It’s the equivalent of living in an apartment complex and deciding to rent out a room to a rock band, which can only play at night. It pumps out loud music; you get €500 a month. It’s good money; not a lot. But you’re destroying the neighbours’ quality of life.”

Taxes pay teachers, train nurses, deliver medicine and provide clean water. If developing countries are to tackle poverty and break out of a cycle of dependency, tax-justice campaigners say, they will need to increase their public finances through sustainable tax revenues.

So to what extent is Ireland helping multinationals to avoid tax and, in the process, impoverish poorer countries?

Christian Aid, which organised a conference on the subject this week, has estimated that the developing world is losing about €160 billion a year in transfer pricing and false invoicing, almost twice the global aid budget. Much of this money flows out of Africa and into shell companies in low-tax jurisdictions.

In research the charity commissioned between 2005 and 2007, it estimated that almost €6 billion flowed into Ireland arising from trade mispricing. Of this, about €270 million came from the 50 poorest countries in the world.

“At home and across the world it is clear that taxation policy has become a way of making the rich richer and treading ever harder on the rights and the futures of the poor,” says Sorley McCaughey of Christian Aid. “Across Ireland and the developing world, many people have had enough of being taxed ever harder, while it seems that huge multinational corporations can get away with paying only the most basic rate.”

The Government, however, says there are no reliable figures and it is in the process of estimating the “spillover” effects of its taxation policies in the developing world.

While the process isn’t complete, Deirdre Donaghy of the tax division of Finance told a conference this week that the department had found relatively little direct flow of transactions between Ireland and the developing world.

Prof James Stewart, a taxation expert at Trinity College Dublin, is sceptical of the provisional findings. “Ireland is the EMEA [Europe, Middle East and Africa] headquarters for many multinationals with a presence here,” he says. “Most of these profits are coming from Europe or the Middle East, but some from Africa. The department needs to ask the right questions and look in the right areas if they’re serious about this.”

Minister of State Simon Harris says Ireland is taking the process seriously and is committed to “playing fair and playing to win”. He says the dismantling of the “double Irish” tax-avoidance scheme is proof.

In the meantime, Prof Alston has warned that Ireland has much more to do before it restores its reputation. The mantra, repeated by Government officials and policymakers, that Ireland was not a tax haven has lost credibility, he says. “I’ve got news for you: no one believes you. When Australia launched a massive inquiry into corporate-tax evasion the headlines were about you . . . When the US lists tax havens abroad, Ireland is right up there.”

Nobody is seeking the abolition of our low corporate-tax rate, he says. Rather, the loopholes and tax-avoidance schemes facilitated under Irish law need to be tackled quickly. The irony, he says, is that these features are not a vital part of our tax offering. “The benefit to Ireland is not particularly clear from these elements. But they do cost a lot to a range of countries whose companies transfer their profits to Ireland. It’s a beggar-thy-neighbour policy.”