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19 October 2006 Edition

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Multinationals - No strategy to reduce overdependence

No future as a tax haven


The 26 Counties remains highly dependent on foreign multinationals. There is no strategy to reduce this overdependence by developing our indigenous industries. The Government has pinned its aspirations for the future of the economy on maintaining a low-tax regime that is attractive to foreign, and in particular US, multinationals. It has disregarded the fact that this dependence leaves the state particularly vulnerable in the event of global economy downturns, downturns in the United States and even to US legislative developments.

A report from the United Nations Conference on Trade and Development (UNCTAD) has shown that multinationals operating in the 26 Counties slashed their investment by $22.7 billion (€18.2 billion) in 2005. The reasons for this were moves by the US to attract investment back to its own economy and to identify companies that might have been using foreign jurisdictions to avoid paying their full tax liabilities through activities such as transfer pricing. In an example of the crackdown on such activity, the US tax authorities have recently intensified their scrutiny of Californian software multinational Synopsys, whose activities in Ireland led to a claim last year for $477 million (€375.9 million) in back taxes. The $477 million tax claim relates to transfer-pricing transactions between the parent company and its Irish business.

Transfer pricing involves the overpricing of imports and/or under-pricing of exports between affiliated companies in different countries for the purpose of transferring profits, revenues or monies out of a country in order to evade taxes. Corporations overstate their exports and understate their imports in order to book their profits in the low-tax regime that is the 26 Counties. The US Senate, in a report in 2001, claimed that multinationals evaded up to $45 billion through transfer pricing. One firm sold toothbrushes between subsidiaries at a price of $5,655 each.

In 2004 the Bush administration introduced the American Jobs Creation Act, allowing US multinationals to repatriate profits to the United States at a favourable rate of 5.35% corporation tax. During the last presidential election George Bush and his administration had come under strong criticism for the seepage of US jobs and investments into "tax havens" such as the 26 Counties. Further moves by the United States to crack down on transfer pricing, which reduces the revenue that it collects in corporate taxes from its multinationals, could have serious repercussions here.

Our economic future cannot be dependent on maintaining our status as a tax haven for multinationals. On one hand, we face the precarious situation of having no control whatsoever over the factors which may influence a multinational to physically relocate to a low-wage economy or to repatriate its profits to another jurisdiction. On the other hand, the low-tax regime in this state is facing intensive competition from the new EU member states, who are slashing their corporate tax rates and engaging in a race to the bottom. At a rate of 12.5%, corporate taxes are already too low and it is absolutely untenable that the 26 Counties could compete with the new EU states in any such race to the bottom.

An Phoblacht Magazine


  • The first edition of this new magazine will feature a 10 page special on the life and legacy of our leader Martin McGuinness to mark the first anniversary of his untimely passing.
  • It will include a personal reminiscence by Gerry Adams and contributions from the McGuinness family.
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