by Claudine Gaidoni and Marie Moran // Attac Ireland – 25 June 2015
Tax dodging by corporations is a major cause of inequality and poverty. It deprives governments of badly-needed revenue which could otherwise be spent on public services, on job creation or on tackling climate change. For instance, for every $10 given in aid to poor countries in the Global South, $15 is lost to tax dodging.
However, big business does not succeed in dodging tax all by itself. It is aided by governments which enact complex tax arrangements which minimise corporate tax liabilities yet which are entirely legal.
Big accountancy and auditing firms also play a critical role in helping corporations to avoid tax. This was starkly highlighted in a recent scandal known as ‘Luxleaks’. Published in November 2014 by the International Consortium of Investigative Journalism, the Luxleaks report is based on documents leaked by Antoine Deltour, an ex-employee of global accountancy firm Price Waterhouse Cooper (PWC) in Luxembourg.
The leaks revealed that PWC had negotiated with the government of Luxembourg 548 secret tax deals on behalf of about 350 multinational companies, including IKEA, FedEx, Pepsi, Amazon, and Deutsche Bank, enabling them to avoid significant proportions of their tax liabilities. Among the Irish companies to benefit were Glanbia and Sisk, which had been using Luxembourg and Irish tax loopholes to save millions in tax.
How did they do this? In the 1990s Luxembourg adopted an EU directive that allowed companies to pay taxes in a European headquarters country other than where their subsidiaries operated. PWC and other big accountancy firms then negotiated special deals, known as advanced tax rulings, which meant that multinationals could register their profits in Luxembourg, avoid paying taxes in the countries where they actually operated, and pay instead a minimal amount of tax in Luxembourg. In this way, they saved billions of euros in taxes.
Luxembourg is of course not the only government fostering those types of schemes. In Ireland, for example, state-sanctioned tax arrangements have enabled companies such as Apple to amass billions of offshore profits which are barely taxed at all. In addition, we have had a complex arrangement known as the ‘Double-Irish’, which has essentially meant that large corporations such as Google have been able to headquarter and operate in Ireland, while channelling their tax liabilities offshore.
PWC and the government of Luxembourg point out that their tax rulings are perfectly legal, as indeed were the ‘double Irish’ arrangements until the government began to wind them down last year. But the fact that they are legal should be a grave cause for concern itself, and should not reassure us that they are therefore ethically or morally acceptable. As Martin Luther King advised in his ‘Letter from a Birmingham Jail’, ‘we should never forget that everything Adolf Hitler did in Germany was “legal”’. For the unpalatable fact remains that hugely profitable corporations are legally dodging tax while public services are being cut and taxes increased on ordinary citizens and local businesses in the affected countries.
To illustrate, while the Greek people are facing a humanitarian crisis, the names of nine big Greek multinational groups appeared in the LuxLeaks report. Indeed, corporations in all of the austerity-ridden peripheral EU countries, as well as in their richer counterparts, have availed of special tax rulings in a number of jurisdictions in order to avoid paying their fair share of tax in the countries in which they primarily operate. This underlines the hypocrisy of Troika policies that demand that Greece and other recession-ravaged countries increase taxes on workers and citizens while simultaneously providing the means by which big multinationals can avoid paying taxes in these countries almost entirely.
LuxLeaks has revealed a scandal that deserves our full attention. It is a scandal that multinationals should not pay their fair share of taxes. Corporations depend on good infrastructure and services for their operations, as well as an educated and healthy workforce, yet they expect these costs to be covered by the taxes paid by working people and small and medium enterprises which cannot avail of the same tax avoidance mechanisms. An army of well-paid lawyers and accountants, often involved in lobbying for the introduction or retention of tax exemptions and loopholes or even in drawing up the tax code, reap rich rewards from advising their clients on how to benefit from it.
Meanwhile our government, as well as previous ones, has engaged in a contradictory industrial policy that prioritises a low corporate tax regime in order to attract multinationals to Ireland in the name of job creation, while simultaneously signing off on tax deals which allow these same corporations to pay little or no tax on the profits created here. It is a lopsided policy which encourages tax avoidance and jobs for the people who understand and facilitate it.
On the 28th of May this year the TAXE Committee, which was set up in response to the LuxLeaks revelations, visited Ireland in order to investigate the special tax deals struck with Apple in 1991 and 2007. If these deals are shown to amount to state aid, Apple could face the possibility of having to pay 2bn Euro in back taxes to Ireland. This is perhaps bad news for a government eager to woo multinationals at any cost, but think of what could be done with such a sum in a country where Focus-Ireland reported that an unprecedented number of 71 homeless families were referred to the charity in April of this year and where, in 2013, 137,000 children were living in consistent poverty.
While Europe and the G20 are making a number of moves to ensure that profits are reported and taxed in the jurisdictions in which they were created, nothing much has changed. The accounting firms which continue to negotiate these special tax deals on behalf of their customers may be doing something which most people would consider immoral, but, as they are not acting illegally, they will not be prosecuted. In fact, the only people currently facing prosecution are the whistle blowers. Antoine Deltour is on trial in Luxembourg, charged with theft and violation of trade secrets. Although it is clear he acted in the greater public interest, he faces a 5-year prison sentence and a fine of €1,250,000 if convicted.
While PWC and the other large accounting houses may feel that they have a duty to serve their clients’ best interests, they cannot ignore the effects of tax avoidance on society at large and are as morally compromised as the multinationals who employ them to reduce their tax bills.
Attac Ireland, the Irish branch of the international campaigning group for tax and financial justice, are hosting a public meeting at Dublin’s Liberty Hall on Saturday June 27th, to discuss how big companies legally avoid billions of euro in tax – and to see what can be done to stop them. For more information see www.attac.ie