Conor McCabe discusses corporation tax and class war.
In November 2006, one of the richest men in the world sat down in an office in Nebraska to converse with a journalist. They talked about class war. The billionaire was Warren Buffett and he told the New York Times that he paid a far lower percentage of his total income in tax than his cleaner. The journalist said that while this may be true, those who raised the issue in public were always accused of fomenting class warfare. Buffett agreed, adding that “there’s class warfare alright but it’s my class, the rich class, that’s making war, and we’re winning.”
It was a moment of frankness and honesty from one of the 85 men who together possess the same amount of wealth as 3.5 billion of their fellow human beings. The disparity in world income, like that between the tax bills of a cleaner and a billionaire, are not by accident but design. And in this world system of accumulation and tax avoidance the lawyers and accountants of Dublin play a profitable role.
In 2005, the Limerick-based academic Mark C. White published a paper which looked at the role of the International Financial Services Centre (IFSC) in Irish regional development. He found that ‘Irish legal services benefit more than most sectors from the continued development of the IFSC and international financial services.’ He said that ‘almost all financial services multinationals purchase legal services locally’ and that regarding the labyrinth of Irish financial and tax law ‘these legal firms provide important tacit knowledge necessary for the production of financial products.’
The vast majority of companies – both Irish and international – pay no corporation tax whatsoever.
Seven years later the Wall Street Journal cast its eye over the world of Dublin’s financial and legal services. It focused on one address: 70 Sir John Rogerson’s Quay, home to hundreds of companies and the head office of Matheson, ‘an Irish law firm that specializes in ways companies can use Irish tax law.’ The newspaper reported that Matheson’s lawyers ‘often serve as directors of businesses registered at its address [in the docklands].’ It gave two examples.
‘Matheson attorney Dualta Counihan has served as a director of at least 274 entities, based on Irish records, while attorney George Brady has served as a director of at least 232 entities.’ Matheson replied to the WSJ that ‘when a client is setting up a new company in Ireland, it is not unusual for a lawyer to act as an initial director of such a company for a short period.’ Among the companies listed at Matheson’s address are subsidiaries of Goldman Sachs, Microsoft, Pepsi Co., J.P. Morgan and Yelp. The law firm’s office is also the official registered address of Google Ireland Holdings, an Irish company that is listed in Bermuda for tax purposes. This is because under Irish tax law companies are taxed where their management meet, not where the company is registered. This set-up allows Google to avoid billions in tax payments.
It is easy for wealth to avoid tax in Ireland. In fact, it’s the law. In 2011 there were about 190,000 enterprises in Ireland, of which around 36,000 paid corporation tax. However, that does not give the full picture. According to the Comptroller and Auditor General’s report for that year, ‘just 129 taxpayers accounted for almost two thirds of total [corporation] tax receipts.’ Far from the headline rate of 12.5%, the median rate of corporation tax in Ireland is currently zero. The vast majority of companies – both Irish and international – pay no corporation tax whatsoever.
The issue of corporation tax is made all the more complicated by the fact that it is possible for individuals to effectively set themselves up as companies and avail of all the tax avoidance measures which come with it. In July 2012 the Irish Independent reported that some of the biggest names at RTÉ, ‘including Pat Kenny, Ryan Tubridy, Marian Finucane and Miriam O’Callaghan, are paid through private companies rather than as PAYE workers, which can potentially slash tens of thousands off tax bills.’Tax avoidance remains a rich person’s game. It has a serious impact on the sustainability of nations, yet in Ireland it remains state policy – not because it is of benefit to the many but because it is of benefit to the few. Warren Buffett is correct.
It’s class war.
Conor McCabe is the author of The Sins of the Father and a researcher with the UCD Department of Social Justice.