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June 28, 2006

There is no Celtic Tiger

Filed under: Ireland, Tax avoidance — Richard Murphy @ 8:58 pm

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) … 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.



  1. I suppose there are no employees either and that house price inflation is Dublin is a figment of my imagination. Come on Richard – this is an unbalanced argument and you know it. Tax isn’t just CT. Though I take your point re: profits schlepped through the Emerald Isle. And remember that in the case of software companies it is IP that generates revenue. BTW – have you seen MSFT’s effective tax rates. And let’s not confuse incentives with tax havens.

    Comment by Dennis Howlett — June 29, 2006 @ 7:34 am

  2. Of course there are employees – but not enought to justify the profits,especially as it is clear the IP was not developed there.

    And of course there is house price inflation in Ireland – that’s what happens when you distort the economy by giving financial incentives. It imposes a cost on ordinary people who are priced out of what they could previosuly enjoy. I don’t call that beneficial growth.

    And this is why this is not an unbalanced argument – it’s all fact, and the reality is that many governments around the world think that ireland is doing exactly what I suggest – i.e. it is stealing their revenues.

    And MS effective tax rates are falling (as are Google’s) because of this.

    Finally, I’m not confusing incentives (of which I also disapprove since they are economic distortions – and I’m in good company – so do McKinsey’s, for example) with tax havens. The simple fact is Ireland is a tax haven. Just a rather big one by the usual standards.

    Comment by Richard Murphy — June 29, 2006 @ 8:07 am

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