IRELAND HAS BEEN accused of being one of the worst offenders for facilitating tax avoidance – potentially allowing the world’s biggest banks to dodge hundreds of millions of euro in corporate tax, reports The Journal.
A new report from Oxfam has shown that Europe’s top banks registered a combined €2.3 billion in profits in Ireland from a total turnover of €3 billion in 2015.
That profitability rate of 76% was four times the global average. Only the Cayman Islands (167%) had a higher average profitability rate, while Luxembourg (61%) was in third place.
The research, which was also carried out by the Fair Finance Guide International, examined filings made under new EU transparency rules for the top 20 banks in Europe – 16 of which have a presence in Ireland.
The report showed that the banks paid an average effective tax rate in Ireland of no more than 6% – less than half the statutory rate of 12.5%.
The research showed that three banks – Barclays, RBS and Crédit Agricole – paid less than 2%. The effective tax rate was calculated using the standard formula of dividing the tax paid on profits by the total reported pre-tax profits.
The report suggested if the effective tax rate is substantially lower than the statutory tax rate, this could mean:
That company’s benefits from special tax exemptions
A company has a preferential tax regime
Part of an organisation’s profits are not taxed in the jurisdiction
Profits are being shifted into a low-tax jurisdiction.
The report also focused on the average profit per employee. Based on this metric, Ireland ranked as a “productive location” for business, as European banks generated an average of €409,000 in profits in 2015 per employee based in the Republic.
One such bank based in Ireland, Spanish financial giant BBVA, generated profits of €6.8 million on average per employee in Ireland, according to the report. That was the 200 times the average profits generated per employee, on average, across the whole organisation in Europe.
The Cayman Islands (€6.3 million) again topped the list based on profits per employee, ahead of Curacao (€4.15 million) and Luxembourg (€454,000) in second and third place respectively.
Oxfam Ireland’s policy and research coordinator Michael McCarthy Flynn said the research suggested that big banks are targeting the Republic as a location in which they can avoid tax.
He added that by allowing this type of tax avoidance, the Irish economy would benefit very little from having these big institutions based on its shores.
“The research raises serious questions about the effectiveness of the Irish government’s measures to tackle corporate tax avoidance,” he said.
“The rules must be changed to prevent banks and other big businesses from dodging taxes or helping their clients dodge taxes. Tax dodging deprives countries throughout Europe and the developing world of the money they need to pay for doctors, teachers and care workers.”
The information underpinning the report followed new EU rules that oblige multinational banks to publish details of their profits and a breakdown of the tax that is paid for each country in which they operate.
McCarthy Flynn added that the new European Commission proposal made last year to increase corporate tax transparency on all multinationals – not just the financial institutions – doesn’t go far enough as it is limited to companies with €750 million or more in turnover.
It was estimated last year that EU countries miss out on up to €70 billion a year in lost tax revenues due to companies dodging tax.
Oxfam previously labelled Ireland one of the world’s six worst tax havens, behind the Netherlands, Switzerland and Singapore. Finance Minister Michael Noonan dismissed that report as flawed and unable to be taken seriously.
The government has repeatedly denied that Ireland facilitates corporate tax avoidance, instead blaming inconsistencies in international tax laws for the use of Irish firms in multinationals’ profit-shifting schemes.
Last year Ireland was placed on a blacklist of tax havens by Brazil, however the Department of Finance has made a formal request for the Republic to be removed from that register.