In making the economic case for Irish unification, republicans have been required, as we saw in the previous essay, to lend their endorsement, albeit implicitly, to a development strategy they know only too well to be profoundly flawed. The economic model adopted in the Irish Republic is problematic not only for a great many people who happen to live there, but for the citizens of a host of other EU states as well. One of the more popular self-delusions that circulate south of the border is that ‘the Irish’ are committed Europeans. That enduring myth takes many forms, ranging from the slavish adherence of Dublin administrations of various hues to every austerity measure demanded by Brussels and Frankfurt during the global recession right through to the classic Sinn Féin doublethink of ‘critical engagement’ with the European project. The rather grand rhetoric routinely issued by public figures south of the border turns out, however, to be sharply at odds with the distinctly self-serving policies pursued by the Irish state. Rather than being ‘good Europeans,’ the gilded members of Dublin’s political establishment are in fact the willing bagmen for multinational capital seeking to defraud other EU states of their legitimate tax revenues. A tad harsh, perhaps? Well, let’s take a closer look.
It has to be said that the Irish state strategy of courting multinational capital has proved hugely successful in its own terms. Nine of the top ten multinationals in the fields of pharmaceuticals and information technology currently have their overseas headquarters in the twenty-six counties.[1] While these global companies habitually claim that they have been drawn by an educated and motivated workforce, the more obvious rationale is a corporation tax rate that in principle stands at 12.5 per cent, but in practice often works out a great deal less. The existence of this generous fiscal regime encourages multinational corporations to manipulate the costs of the goods, services and finance that move between their branch plants in order to minimise their fiscal obligations elsewhere. Employing the complex forms of creative accountancy usually designated as ‘transfer pricing,’ transnational companies can shift their profits and sales from other countries and book them in Ireland where the tax rate is a great deal more favourable. This strategy reveals itself in levels of corporate performance that are, quite literally, beyond belief. Take the Coca-Cola branch plant in County Louth in the 1990s that registered an annual profit of (the equivalent of) €500 million, even though it employed only 200 workers.[2] Then there is the case of Kinsale Financial Services – owned by the US pharmaceutical giant Eli Lilly – which in 2004 turned a profit of $96 million in a single year despite having only two people on the payroll.[3]
Or, consider the powers of alchemy at work in the Kellogg’s corporation which in 2014 managed to record sales of €7.1 billion in the Irish Republic with a workforce of just two dozen.[4] Do the sums: even if every man, woman, and child in the state were to purchase and consume a family pack of Cornflakes every single day of the year, the sales total would still fall some way short of what the global agribusiness would have us believe.
The creative accountancy that allows multinationals operating in the twenty-six counties to avoid their tax responsibilities elsewhere means, of course, that the conventional metrics often wildly overstate the performance of the southern Irish economy. That would become dramatically apparent to one and all in the summer of 2016 when the CSO data suggested that in the previous year the Irish Republic’s GDP had grown by the genuinely incredible figure of 26.3 per cent. The publication of these statistics was greeted with widespread derision: Sinn Féin finance spokesman Pearse Doherty denounced them as a ‘nonsense’ that ‘does not reflect any sort of reality,’ while Nobel laureate Paul Krugman, famously, sought to capture them in the unfortunate epithet of ‘leprechaun economics.’[5] The dramatic surge in economic output reported by the CSO was, in fact, largely the outcome of canny decisions made by the CEOs of just two transnational companies:[6] Apple, who decided to relocate their intellectual property operations to the twenty-six counties to avail of new generous tax regulations, and Aercap, who joined the list of airplane leasing companies operating in an Irish state which is now home to 60 per cent of all global aviation operations of this kind.[7]
The CSO figures for 2015 illustrated even more vividly than before that the operation of the multinational sector makes the data on the Irish economy wildly unreliable. In response to the embarrassment of very public claims that they were practicing the dark arts of ‘leprechaun economics,’ the Irish government introduced a new measure of ‘(modified) gross national income’ (GNI*) which factors out the distortions arising from transnational capital’s tax evasion strategies. While this more reliable metric of economic performance has featured occasionally in public commentary – the Sinn Féin position paper, in fairness, refers to it, if only in passing – research conducted over the two years after its introduction indicates that GDP remains pre-eminent, appearing twelve times more often in the southern Irish media than GNI*.[8] This has, of course, no little significance for the debate on constitutional change that republicans are striving so hard to animate. What it means, in short, is that the public discussion of the southern Irish economy which will be absolutely pivotal to the outcome of any prospective border poll will be informed primarily by data so transparently unreliable that anyone who is not already predisposed to a united Ireland is unlikely to be even remotely convinced by it.
The problems that arise from the creative accountancy of multinational companies located in the Irish Republic have, of course, repercussions well beyond the boundaries of the state. Perhaps the most critical consequence of the collusion of successive Irish governments in transnational corporations’ tax evasion strategies is that it deprives many other European states of the revenues that are essential for the maintenance of critical public services. The sheer magnitude of this fiscal expropriation would become apparent in the summer of 2016 when a ruling by the European Commission revealed that the Irish state had made sweetheart deals with Apple in 1991 and again in 2007 which allowed a corporation with the largest cash reserves in the world to pay an effective tax rate of 0.005 per cent on its profits booked in Ireland.[9] In offering this arrangement to the global tech giant but not to other companies, the Dublin authorities were deemed to have infringed EU competition law. Adjudicating on the infringement, EU Commissioner Margrethe Vestager instructed Apple to pay the Irish government €13 billion in taxes owed, a figure that might have risen to €19 billion with interest. To the astonishment of most international observers, the Irish state joined the tech corporation in contesting the judgment, and in the summer of 2020 it was overturned.
The outcome of an appeal that saw billions disappear from its coffers was widely reported in the media as a ‘victory’ for the Irish state in its attempt to refute the growing claim that it operates as a tax haven.[10] It was, in fact, nothing of the sort. The purpose of the European Commission, in this instance, was not to adjudicate on the legality, or indeed the morality, of the Irish state’s tax arrangements but rather to judge whether those arrangement gave an advantage to some companies over others. To suggest that the outcome of the appeal represented a vindication of the Irish state’s insistence that it is not a tax haven is, therefore, a complete mis-representation. Indeed, all of the evidence presented in the European Commission ruling gave yet further weight to the allegations levelled increasingly at the Irish Republic.[11] What the investigation revealed was that Apple channels sales that occur in other EU states through two front companies in Ireland that then direct the lightly taxed profits to an overseas headquarters that does not, in fact, exist. In doing so, the Irish state takes a cut in a recurrent transnational corporate heist that sees several other European countries robbed of indispensable fiscal resources. It is small wonder then that the Irish development model has been characterised by Yanis Varoufakis as a ‘beggar-thy-neighbour’ strategy, [12] or that Nobel laureate economist Joseph Stiglitz has been moved to comment that the Irish state’s tax arrangements mean it is ‘robbing’ its European neighbours.[13]
While Irish politicians are keen to cast themselves as ‘good’ Europeans, the state that they oversee acts, therefore, as the bagman for various elaborate accountancy scams that see multinational corporations swindle essential resources from several other EU states. It is just possible, however, that the Irish state’s days as one of Europe’s principal tax havens are numbered. Over recent years, there have been signs that several powerful international players – the US, the OECD, and perhaps the EU as well – are beginning to take action to eliminate some of the more egregious creative accountancy practices employed by multinational capital. It would, of course, be naïve to assume that all of the architecture required to ensure genuine global tax justice will materialise overnight. There is, nonetheless, growing evidence to suggest that in certain centres of power the will now exists to outlaw at least some of the myriad ‘tax games’ at which transnational corporations are so adept. The potential impact on Ireland of this shift in political mood is already becoming apparent. At the end of 2020, for instance, the infamous ‘Double Irish’ loophole – allowing multinationals to be both incorporated in Ireland and simultaneously registered in another country with even lower taxes – was finally closed.[14] And recent weeks have also witnessed Facebook being forced to repatriate its intellectual property operations in the Irish Republic after receiving a bill for $9 billion from the Internal Revenue Service.[15]
While the potential impact of these global developments on the constitutional destiny of this small island might not be immediately apparent, it might just prove to be profound. Over the next decade or two, as the nascent demographic advantage of the nationalist community in Northern Ireland turns towards an electoral advantage, it is entirely possible that the development model adopted on the other side of the border might just begin to unravel. In other words, as the political conditions that might facilitate a united Ireland start to materialise, the economic circumstances essential to such an eventuality might just be evaporating. Once more, we encounter the many ironies of a period of political flux that poses challenges for all of us, but for republicans not least. To paraphrase the scriptures: the Lords of global capital giveth, and the Lords of global capital taketh away.
Notes
[1] Stephen Kinsella, 2014, ‘Post Bailout Ireland as the poster child for austerity,’ CESifo Forum 15(2): 20–25.
[2] Paul Sweeney, 1999, The Celtic Tiger: Ireland’s Continuing Economic Miracle (Dublin: Oak Tree Press, p. 51.
[3] Sunday Business Post, 2006, ‘Kinsale Financial made $96m with just two employees,’ 18 February 2006. Available at: https://www.businesspost.ie/legacy/kinsale-financial-made-96m-with-just-two-employees-55d42f16.
[4] Mark Paul, ‘Kellogg’s pays €7m tax on €7.1bn sales moved through State,’ Irish Times 7 April 2015. Available at: https://www.irishtimes.com/business/economy/kellogg-s-pays-7m-tax-on-7-1bn-sales-moved-through-state-1.2166810.
[5] Colm Kelpie, 2016, “‘Leprechaun economics’ – Ireland’s 26pc growth spurt laughed off as ‘farcical,’” Irish Independent, 13 July. Available at: https://www.independent.ie/business/irish/leprechaun-economics-irelands-26pc-growth-spurt-laughed-off-as-farcical-34879232.html.
[6] Eoin Burke Kennedy, 2016, Handful of multinationals behind 26.3% growth in GDP. Irish Times, 13 July. Available at: https://www.irishtimes.com/business/economy/handful-of-multinationals-behind-26-3-growth-in-gdp-1.2719047.
[7] Nessa Ní Chasaide, 2020, ‘Ireland’s tax games: the challenge of tackling corporate
tax avoidance,’ Community Development Journal, doi: 10.1093/cdj/bsaa054.
[8] Colin Coulter and Francisco Arqueros-Fernández, 2020, “The distortions of the Irish ‘recovery,’” Critical Social Policy 40(1): 89–107, p. 94.
[9] European Commission, 2016, ‘State Aid: Ireland Gave Illegal Tax Benefits to Apple Worth up to €13 Billion,’ Brussels: European Commission.
[10] Joe Brennan, 2020, ‘Ireland wins appeal in €13 billion Apple tax case,’ Irish Times, 15 July. Available at: https://www.irishtimes.com/business/economy/ireland-wins-appeal-in-13-billion-apple-tax-case-1.4305044.
[11] Thomas Tørsløv, Ludvig Wier, and Gabriel Zucman, 2018, The Missing Profits of Nations. NBER working paper #24701, Cambridge, MA: NBER.
[12] Donal Lynch, 2016, ‘Varoufakis: Trichet's ultimatum to Ireland was like an idle suicide threat,’ Irish Independent, 24 April. Available at: https://www.independent.ie/business/varoufakis-trichets-ultimatum-to-ireland-was-like-an-idle-suicide-threat-34652225.html.
[13] Peter Hamilton, 2020, “Ireland ‘robbing’ European neighbours with low tax rate – Stiglitz.” Irish Times 15 June. Available at: https://www.irishtimes.com/business/economy/ireland-robbing-european-neighbours-with-low-tax-rate-stiglitz-1.4279638.
[14] Nessa Ní Chasaide, 2020, ‘Ireland’s tax games,’ p. 11.
[15] Julia Kollewe, 2020, ‘Facebook to close Irish holding companies at centre of tax dispute,’ The Guardian 27 December. Available at: https://www.theguardian.com/technology/2020/dec/27/facebook-to-close-controversial-irish-holding-companies.
Back to: Institute of Irish Studies