Today Global Britain launched a joint paper written by ourselves and Ewen Stewart, entitled “The Irish economic miracle – fact or fiction?”.
The paper exposes how the Republic of Ireland has established itself as a tax haven within the European Union, to the benefit of itself and of the mainly US-parented multinationals that have established European and sometimes global bases there.
At the current key time in UK-EU-Irish economic relations, it bears examination why Ireland is so committed to the so-called Irish backstop, what the meaning is of its veto over the UK exiting the backstop, and what a future UK-EU Free Trade Agreement would have to contain in order for Ireland to agree it and permit the UK to exit the backstop.
The intention from Ireland’s size is a continuation, ad infinitum, of the status quo, in which Ireland’s 2017 Gross Domestic Product (“GDP”) of €294 bn exceeded its Gross National Income (“GNI”) of €181 bn – the measure of genuine, in-country economic activity – by €113 bn.
This difference represents the offshore, tax-driven part of the Irish economy, which has boomed since Ireland had to seek a financial bailout in 2010. Ireland’s recovery has seen its Government Debt/GDP ratio fall from 122% to 64.6%, well on track to meet the statistic in the EU Fiscal Stability Treaty of 60% by 2030. This has been achieved not by reducing debt – which stands at €206 bn compared to €144 bn in 2010 (Source: Eurostat) – but by falsely inflating GDP with offshore flows, dog-legged through Ireland by means of paper transactions with no substance behind them, solely for the purposes of tax management. Government Debt/GNI stands at a much less impressive 106%.
Ireland’s wealth has been bought at the expense of other EU Member States in exact proportion to their economic size: Germany first, then the UK, then France.
The other major loser is the USA, as the profits created in Ireland are not remitted to the US parent so as to be taxed by the US Internal Revenue Service, but end up accumulating as nest eggs in some foreign tax haven.
Ireland’s wealth derives from profit-shifting, or “Base Erosion and Profit Shifting” whereby costs are made to reside in other Member States, eliminating taxable profit there, whilst revenues and profits are recognised in Ireland, and taxed there – eventually – at 12.5% per annum.
“Eventually” means once the Irish subsidiary of the multinational has made use of the many Irish tax allowances available to it, and has paid intercompany charges levied on it by sister companies on account of usages of brands, recipes, designs, software and whatever other kind of intellectual property can be dreamed up and accorded an inflated value.
€14 bn per annum is lost to the exchequers of other EU Member States.
€53 bn per annum of costs are not spent in other Member States but are transferred to be spent in Ireland in terms of employee costs and professional services expenditure: this is Ireland’s major benefit.
€43 bn per annum of miscellaneous costs are attributed to the Irish subsidiaries in order to reduce their Irish taxable profits from €57 bn per annum to €14 bn per annum, on which they pay 12.5% tax of €1.8 bn per annum.
Ireland is perfectly legally exploiting – to the full – the loopholes available thanks to the structure of the EU Single Market and Customs Union, and the residual freedoms to Member States over their corporation tax regimes and rates, and over the signing and terms of Double Taxation Treaties with non-EU countries. Ireland has an effective veto over changes to this structure, thanks to the terms of the Treaty on the Functioning of the EU.
The UK’s Brexit Withdrawal Agreement as currently drafted promises “regulatory alignment”: a continuation of the current structure during the transition period, with Ireland holding a veto via the “backstop” over when the transition period will come to an end.
Logically the Irish EU Commissioner nominated to head the EU’s negotiating team during the transition period on the supposed Free Trade Agreement between the UK and the EU will steer towards continued “regulatory alignment” after the transition period.
Instead the Withdrawal Agreement should not be signed on terms that permit Ireland to continue its detrimental practices towards the UK during any transition period, and no Free Trade Agreement should be signed that enshrines Ireland’s right to continue with them after any transition period.
The Good Friday Agreement, of which the USA is a guarantor, was surely not meant to enable Ireland to exploit the UK as it is doing now, and to deny the UK any unilateral exit mechanism from it.