New research by Richard Murphy of the UK-based Tax Justice Network looks at country-by-country reporting of 26 major EU banks. Although the data are incomplete, the central finding is as clear as it is predictable.
Banks are under-reporting profits where they actually carry out much of their work, while they are over-reporting them in those tax regimes that offer them the most favourable treatment. Ireland of course features prominently in the latter category, as do Belgium, Luxembourg, Mauritius, Malta and the Isle of Man.
I have alluded previously to the role of Dublin in such profit and tax manipulation and the fact that this not only reduces the tax receipts available to governments across the world, but that it also helped fuel the financial crisis.
Jim Stewart of Trinity College highlights how the Irish/International Financial Services Centre (IFSC) in particular played a key role in the “shadow banking” system, where high leverage (lending-to-asset) ratios and lax regulation led to the collapse of several financial institutions.
Many of the major sub-prime and other funds that went belly up at the outset of the crisis were listed on the Irish Stock Exchange, and four German banks with subsidiaries at the IFSC suffered severe losses. One of these banks – Sachsen – employed only 56 people in Ireland (15 percent of all the bank’s employees) but, in 2005, this relatively small Irish operation reported profits of €50 million, whereas the rest of the group seemingly suffered losses of €32 million. The disingenuous declaration of profits in (or through) Ireland is particularly glaring here.
Many such funds have not gone away and continue to make use of so-called “special-purpose vehicles” (in part designed to keep liabilities off balance sheets), including financial-vehicle corporations that enjoy especially favourable tax treatment. There were 776 such corporations registered in Ireland in 2012, a remarkable 27 percent of the EU total.
Stewart notes that for such corporations, “Even though assets are large, employees are zero and domestic expenditures are also low. Furthermore, future jobs growth is unlikely”. The claim by the government in March of this year that a new International Financial Services Strategy will create 10,000 new jobs by 2020 seems rather optimistic under the circumstances.
A key player here is the IFSC Clearing House Group, a public-private partnership that includes both civil servants and private-sector representatives. It drives government support for the financial services sector and blocks any attempts to rein it in, such as a proposed financial-transactions tax, which might actually have generated some €500 million in additional annual revenue for the government.
But surely, one might think, other European powers have problems with Dublin’s support for a sector that so egregiously avoids tax and dodges effective oversight?
When it comes to non-financial corporations, there have been some stirrings all right – the European Commission is investigating the fact that Apple and other companies are using exaggerated sales and profits declarations in Ireland to significantly reduce their tax bills, and the Irish government has tweaked its overall corporate tax regime a little in response.
But the problem is not confined to Ireland. As Eamonn McCann explained in the Irish Times, the head of the European Commission himself, Jean-Claude Juncker, when he was prime minister of Luxembourg, pioneered and institutionalised systemic tax avoidance by multinational companies (financial and other) “on an industrial scale . . . The deals washed profits made in other European countries clean of tax liability. The amounts squirrelled away from the revenue collectors of Europe ran to hundreds of billions of euro.”
Unsurprisingly, given Juncker’s prominent position, the EU itself bears responsibility for perpetuating large-scale tax avoidance. A report produced last year by the European Network on Debt and Development was entitled “Hidden Profits: the EU’s Role in Supporting an Unjust Global Tax System”.
Dublin plays a crucial role in the facilitation of dodgy corporate affairs, but it is a link in a European and global chain, not a stand-alone offender.