There is no Celtic Tiger

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OK, I’m an Irishman (after all, what did you expect with a name like Murphy?). Alright, I was brought up in the UK, but 27 million of the world’s 30 plus odd million Irish passport holders were born outside the place, but we remain Irish all the same. And unlike a lot of them I’ve run a real company in Ireland, for seven years, so I know something about its economy and its taxes. So, let me respond to Dennis Howlett’s comments on my article on the Taxpayer’s Alliance, below, from that view point.

And let me make one thing clear — there is not, and never has been a Celtic Tiger! Nor are there leprechauns, by the way, but if you believe one you might also believe the other, so I thought I’d better add that just to make sure.

So let’s look at what I said — which was to suggest that Ireland has “the intent(ion) ‚Ķ to undermine the income stream of other nation states”. Which I contend to be true.

What’s the evidence? Well, let’s take this from on article on Microsoft’s tax in the Wall Street Journal on 7 November 2005 (to which, I admit, I contributed quite a bit of the research, and which did quote me). It gave these stark facts (which are facts):

1. Microsoft’s subsidiary Round Island One Limited is Ireland’s biggest company;
2. It had gross profits of $9 billion in 2004;
3. It paid tax of $300 million in Ireland in 2004 — not bad in a country with about 4 million resident people;
4. In the rest of Europe Microsoft paid just $17 million of tax in 2004 — although those countries had populations exceeding 300 million.

So let’s be clear — massive profits are being declared in Ireland (by implication of the tax paid they must be at least $2.5 billion) but the domestic revenue in Ireland is vastly lower than that. And almost no profits are being reported elsewhere — including in the UK where it looks likely from Round Island One’s accounts the turnover is around the billion dollar mark (give or take). The same pattern is true, broadly speaking for Google, NCR, Oracle, Pfizer, Dell, Apple and Intel, amongst others in Ireland.

This means that Irish GDP is being massively inflated not by real economic activity being relocated there (NCR are believed to have less than 100 employees there, but book about half their world wide profits in the country) but by profits being booked there. It so happens this boosts GDP because GDP includes profits coming in — even if they then flow straight out again. And that’s true even if the profits are not generated by local labour but by patent and copyright royalties on licenses transferred from the US, which like the revenue authorities of all the European countries where Microsoft appears to have paid less than you would expect based on relative turnover, also loses out from this wholly artificial, tax driven booking of profits in Ireland.

So the evidence is clear — this is not real growth in Ireland. For that to be the case real trade would go there. But what’s actually happening is transient profits are going there from which they cream off a bit. Which is why no one else can replicate this — as it would lead to tax war, not tax competition. It explains why Ireland is a tax haven that should be denied the benefit of international tax recognition by treaty, and it’s why the Celtic Tiger is just an accounting trick, not a matter of economic substance.

If the economic miracle were based on something of such substance — like Guinness — I’d be all for it. But it isn’t. It’s a con. So please don’t buy it.

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