Is Ireland a tax haven?

Nicholas Shaxson, author of the acclaimed Treasure Islands, brings together the evidence and concludes that Ireland is a tax haven - one which saw $1.8 trillion moved by multinationals through subsidiaries in the IFSC and reinvested overseas in 2009.

Many things that happen in Ireland’s financial centre constitute hostile acts towards the taxpayers of other countries. Because it is a tax haven, or secrecy jurisdiction.

A while ago I wrote a blog for the Tax Justice Network which looked at the Wild-West Dublin International Financial Services Centre (IFSC), and quoted a well-regarded blogger, David Malone, who said this:

The same banker told me this. She was aware of instances, and so was everyone else, of banks, German banks, who used to fly their people from Germany to Ireland in order to do deals that were not allowed in Germany.

This is absolutely, quintessentially, offshore business. In Treasure Islands my definition of a tax haven, or secrecy jurisdiction, is this:

“a place that seeks to attract business by offering politically stable facilities to help people or entities get around the rules, laws and regulations of jurisdictions elsewhere.”

Which is just what Malone describes. He continues:

“This is known in the financial world as jurisdictional arbitrage. You and I would call it cheating if we were feeling charitable and lying if we weren’t. . . .I have spoken to such people. Usually I can hear the sweat coming off them as they ask how I got their number and where did I get my information.”

The rest of Malone’s blog, entitled Who Bankrupted Ireland? is well worth reading, to get a proper feel for what the IFSC is up to: helping banks get around the financial regulations of jurisdictions elsewhere. He describes the IFSC as a “legal gated community” which again gets close to some of my descriptions of tax havens, particularly in my Delaware/Jersey chapter “Ratchet.” This appallingly lax business (for more specifics on the IFSC’s skulduggery, see Jim Stewart’s work here,) at least as much as Ireland’s 12.5% tax rate, had been a major component of Ireland’s Celtic Tiger economy leading up to the crisis. As the photo above (hat tip: here) so memorably puts it:

“Do not approach this rare and dangerous animal . . . it might just bite you on the arse.”

This is, well, pretty much exactly what tax havens do. Unfortunately, they aren’t that rare these days. About 60 at the last count.

Now the IFSC stuff I’m describing here isn’t about tax, but about financial regulation. And this underlines one of the big points in my book that tax havens are about much more than tax.

But the same basic argument applies for tax: once again, it’s Ireland’s laxity that is at play. Lax rules suck up money from elsewhere – and in the process screw ordinary taxpayers elsewhere. It’s the basic offshore formula.

The Progressive Tax Blog has a most useful post looking at Ireland’s business of hoovering up capital, shaking off the tax charge, and spitting it out again to be reinvested elsewhere, all for a small fee. This graph, from a recent report on Ireland’s economy, shows how important this tax haven business is.

By and large, as the report explains, the smaller green segments represent real investment while the blue segments represent offshore business (“the movement of capital by multinational companies to subsidiaries in the IFSC that is re-invested overseas”). This offshore busines amounted to about $1.8 trillion in 2009. Trillion, not billion. That’s rather a lot.

Now a lot has been written about Ireland’s famous 12.5% tax rate. But that’s not the subject  here. What Ireland does is to let companies route their transactions through the IFSC and escape tax altogether. As the Prog Tax Blog explains, Ireland:

“does not have comprehensive ‘transfer pricing’ rules. . . . Ireland has historically had no transfer pricing rules whatsoever.”

Transfer pricing rules are supposed to stop corporations from playing fast and loose with tax havens to shake off the tax charge. (The rules are an ass, but they are all we’ve got for now.) The fact that Ireland doesn’t have comprehensive rules means that corporations can get away with these shenanigans, without getting questioned. (It’s a bit complex – you use Luxembourg too — the Prog Tax blog outlines the gory details for those who are interested.)

Here again we have that appalling Wild West laxity, that screw-other-countries approach, the tax haven classic. It’s led to companies like Google getting away with a 2.4% overseas tax rate, way below Ireland’s headline 12.5% rate, and leaving ordinary American taxpayers to pay the taxes Google won’t.

Now here is the main point of this blog. Prog Tax notes the obvious question:

"You might ask why Ireland is used in planning structures like this in place of classic tax havens such as Bermuda, Cayman Islands and Jersey."

Why indeed? Good question.

The answer is that in these cases many countries would apply withholding tax on interest paid to traditional tax havens.

In other words, reputable democratic countries have put in defences against the “traditional” tax havens like the Caymans, Bermuda or Jersey, to try to stem the abuses run out of the hostile financial services industries located on those islands. But not Ireland. It’s not regarded as a hostile country for tax purposes.

Well, it should be. It is biting ordinary taxpayers, the world over. On the arse, if you will.

This article was originally posted on and is reposted here with permission.