Taxation and development
Ireland’s Ministry of Finance just published a tax policy spillover analysis, looking at possible effects of the Irish tax system on developing countries. The study was carried out by IBFD and I contributed to the economic analysis.
Michael Noonan, the Minister, calls on other countries to conduct a spillover analysis too:
“It is my view that, in order to show full commitment and foster a trusting relationship between the developed and developing world, all developed countries should undertake such a spillover analysis. The combined efforts of many countries will be required to form a full picture of how developing economies are affected by other domestic tax regimes.”
To my own surprise, the main finding is that investment and trade between Ireland and developing countries are rather small. The risk of negative effects of Irish tax policy on developing countries is therefore limited.
What about the “Double Irish” then? Google, Yahoo!, Forest Laboratories… all those stories of big multinationals using Irish entities in aggressive tax planning structures? Well, those stories are true, they are highly disturbing, and Ireland shouldn’t be facilitating such structures any longer – certainly not until 2021, as announced. However, it seems that these structures mainly cause revenue losses in large and rich countries. The data show that effects on developing countries are relatively limited, also compared to the size of their economies.
The Irish spillover analysis includes elements from a study on Dutch tax policy that I did for the Netherlands Ministry of Foreign Affairs and a report by the IBFD on Dutch tax treaties with developing countries. Whereas the Irish study is broader in scope, the Dutch analysis was more detailed, because the Dutch central bank allowed access to unpublished country-level data. The Irish Central Statistics Office did not, so we had to rely on publicly available data. Especially for international trade in services, this limits research options.
The OECD’s report on economic analysis of profit shifting, published last week, highlights data limitations as well. It is therefore essential that company data on turnover, profit, taxes and other key variables per country, which are to be reported from 2017, become available to researchers. However, considering that royalties and management fees are important channels of profit shifting, it would also help if existing data on bilateral trade in services become available. If the OECD is serious about monitoring profit shifting by large multinationals, it should make an effort to bring out those data.