Hardly a week goes by without the subject of Ireland’s corporation tax being in the news. At the beginning of March this year, it was reported that Apple enjoyed an even lower corporation tax rate than Ireland’s already low rate of 12.5%. The Irish Times headline put it bluntly: ‘Apple paid $36m tax on $7.11bn profits at Irish unit’. Ireland’s corporation tax regime has also made international headlines; in September 2013 the Financial Times ran a lead story regarding an EU probe into “corporate tax sweeteners” by several countries, including Ireland. Although it might not appear so at first glance, low corporation tax rates and tax avoidance by companies can have a significant impact on a States’ ability to fulfill its human rights obligations.
The past few years has seen increased attention being paid, including at the highest political levels, to tax havens, secrecy jurisdictions and aggressive tax avoidance by individuals and multinational companies (see the excellent book Treasure Islands by Nicholas Shaxson). The EU are looking into various tax practices, while the G8 and the Organisation for Economic Cooperation and Development have committed to tackling certain aspects of tax abuse.
With regards to the mechanics of tax abuse, large companies have engaged in profit shifting to low tax jurisdictions, such as Ireland, through means such as “transfer pricing” or royalty payments for intellectual property rights. Ireland does not deny its low corporation tax rate, but the Government has been at pains to challenge any claims that this is a tax haven or that it has offered lower than publicised rates to multinationals. There is, according to Nicholas Shaxson, a “a veritable industry of tax haven deniers” in Ireland. The latest salvo has come in a technical paper from the Department of Finance which claims an effective corporation tax rate of over just 10%, perhaps in response to the publicity given to Jim Stewart’s showing of a 2.2% effective rate in the case of some United States subsidiaries. The federal corporate tax rate in the United States is 35%.
In addition to these technical examinations of tax issues, various civil society organisations have been researching and analysing how tax activities can impact on human rights and development. The Human Rights Institute of the International Bar Association, for example, convened a Task Force on Illicit Financial Flows, Poverty and Human Rights. Its comprehensive 2013 report concluded that “tax abuses have considerable negative impacts on the enjoyment of human rights”. The principal issue is one of resources, with the vast sums that are diverted into private wealth denying governments the ability to meet their human rights obligations. The Task Force explained that practices such as profit-shifting, tax incentives and the use of secrecy jurisdictions:
deprive governments of the resources required to provide the programmes that give effect to economic, social and cultural rights, and to create and strengthen the institutions that uphold civil and political rights.
The problem is particularly pernicious in developing countries, where the non-payment of taxes, and other illicit financial flows, seriously damage poor States’ ability to live up to human rights. Similar studies have been carried out by Global Witness, Oxfam, ActionAid, and the Tax Justice Network – the Business and Human Rights Resource Centre usefully gathers all this work together here. The United Nations have appointed an Independent Expert, Cephas Lumina, to examine the impact of illicit financial flows on human rights (see his his 2013 Interim Report).
The issue remains a live one in Ireland, with each budget seeing a new round of cuts to services and little or no change to tax rates. In 2012, Colette Brown of the Irish Examiner reported the findings of the Tax Justice Network that revenue lost in the “shadow economy” of tax evasion amounts to €7.6bn each year. She noted that this was “equivalent to the total amount of cutbacks and tax increases that the Government is planning to inflict on the country over the next three years”.
In 2011, following an invitation from the Irish Government, the then United Nations Independent Expert on Extreme Poverty and Human Rights, Magdalena Sepúlveda Carmona, conducted a country visit to Ireland. In her report, she expressed concern at the “low level of taxation” in Ireland, which is amongst the lowest in Europe, and commented on how the Irish government has pursued cuts in public expenditure mainly rather than increasing taxes. The report states that:
Low levels of domestic taxation revenue can be a major obstacle to a State’s ability to meet obligations to realize economic, social and cultural rights. […] seeking to achieve adjustments primarily through expenditure cuts rather than tax increases might have a major impact on the most vulnerable segments of society. Reductions in public expenditure affect the poorest and most vulnerable with the most severity, whereas some increase in taxation rates could place the burden on those who are better equipped to cope. […] By increasing its tax take, Ireland would decrease the need for cuts to public services and social protection, and thereby help to protect the most vulnerable from further damage.
Oxfam has focused recently on the role that tax pays in increasing inequality, calling on the British Government to start “clamping down on companies and individuals who avoid paying their fair share of tax”. If one takes a global perspective, it can be seen that the impact of a country’s approach to tax can have an effect on human rights in other countries also. In the case of Ireland’s approach to corporation tax, a thorough study by Dr Sheila Killian notes that
Ireland’s tax system can be abused by multinational firms to reduce their worldwide tax, and in the process to impoverish the revenue authorities of Southern countries.
It will be an uphill struggle to persuade the Irish Government to rethink its approach to corporation tax, given its centrality to the attraction of foreign direct investment. In response to some of the recent tax scandals, the Government claims to have “closed a legal loophole that allowed Irish registered companies to be stateless for tax residency purposes”. This does not go as far as proposals from the OECD, whereby tax would be paid not where a company is based, but rather where economic activity takes place. The Irish Times carried the following warning regarding these proposals:
If implemented, the consequences of the proposals for Ireland, both in lost tax revenue and lost employment, would be considerable and Ireland’s appeal as a base for foreign direct investment, a key driver of economic growth, would be greatly diminished.
Business is also concerned. Chartered Accountants Ireland has said that the OECD plans will “fundamentally change the business model for companies based in Ireland”, and that they need to be challenged “before they become concrete to the detriment of Irish business and Irish taxpayers generally.” Appeals to competitiveness are insufficient, however, in the face of the detriment to human rights caused by tax policies and strategies pursued by Ireland, by other low or no tax jurisdictions and by many of the world’s largest multinationals.