For countries in the tax haven game, it’s a race to the bottom. Singapore’s welcome mat? Corporate taxes at just 17 percent. Gibraltar scrawls 10 percent on its rock, and the Cayman Islands boast 0 percent (even though everyone knows the tab on Cayman-registered profits ends up at 13 percent).

But nobody outsells Ireland and its complex, opaque package of come-hither goodies for corporations looking to dodge tax collectors (legally) back home. In a report published last month entitled “The Missing Profits of Nations,” economists from the University of California, Berkeley and the University of Denmark found that:

MULTINATIONALS MOVED $106 BILLION OF CORPORATE PROFITS TO IRELAND IN 2015, MAKING IT THE LARGEST CORPORATE TAX HAVEN IN THE WORLD.

That’s more than the amount squirreled away on all the Caribbean islands combined, $97 billion, and more than Singapore’s $70 billion, Switzerland’s $58 billion and the Netherlands’ $57 billion, according to the research. “These are profits created elsewhere and then moved to Ireland, most likely purely for tax purposes,” says economist Thomas Tørsløv, who co-authored the report.

Since the 2017 leak of the Paradise Papers, which revealed how corporations and high net worth individuals shift money around offshore to avoid taxes, Tørsløv and his team have set out to develop a better understanding of the global impact of tax havens. They began their research by comparing the profits made within a country to the amount of corporate activity. “If there are lots of profits and not a lot of activity, that’s our first indication that something is going on,” says Tørsløv. And that’s what was happening in Ireland.

IRELAND MAY BE THE BIGGEST TAX HAVEN, BUT THE U.S. IS THE BIGGEST TAX EVADER.

Tørsløv and his team then examined the profit rate of foreign industries in every country in 2015, and compared the profitability of that multinational sector to each economy’s local sector. Any large discrepancy indicates profit-shifting.

They found in 2015 most foreign companies in nontax havens had a 30 to 50 percent profit rate, making them less profitable than the local sectors. In Ireland, on the other hand, foreign companies had a rate of 800 percent, making them far more profitable than the local sector.

Just what’s in that Irish goody basket? For starters, a 12.5 percent corporate tax rate (the recently lowered U.S. rate is 21 percent), and some multinationals have been able to reduce that base rate by cutting deals with the Irish government. The EU is currently investigating arrangements whereby some firms paid 0.1 to 0.01 percent taxes on profits.

Ireland also benefits from a strategy called transfer pricing, in which multinationals shift profits from subsidiaries in high-tax jurisdictions to low-tax ones. In 2014, Apple deployed this tactic for a 3.7 percent effective tax rate on $31 billion in revenue. Alarm bells went off, leading the U.S. Senate and the European Commission to investigate the corporation’s Irish operations and Apple’s CEO to declare, “We do not stash money on some Caribbean island.”

Another Emerald Isle incentive? A corporate tax rate of only 6.25 percent for revenue derived from a company’s patent or intellectual property. And taxation policies on research and development offer attractive incentives for corporations to set up innovation skunk works. Corporations also appreciate the opacity of Ireland’s setup. The government does not require multinational corporations to provide public accounts of subsidies received, profit or amount of taxes paid.

Ireland may be the biggest tax haven, but the U.S. is the biggest tax evader, says Ronald Davies, economics professor at University College Dublin. “Is Ireland a conduit for tax minimization?” he asks. “Yes, but it looks so big because of the U.S.”

It’s true that Ireland has benefited from direct U.S. investment of more than $277 billion in the past two decades — more than China, India, Russia and Brazil combined, according to the American Chamber of Commerce in Ireland. As of 2015, more than 700 U.S. companies employed 130,000 people on the Emerald Isle, including tech giants Alphabet (Google’s parent company), Facebook and HP Inc., in addition to Apple.

The tab for this international shell game? It’s as much as $240 billion a year in lost tax revenue for governments around the globe, according to a 2015 estimate by the Organization for Economic Cooperation and Development.

What does losing out on those billions in tax revenue each year mean for the enormous U.S. economy? According to Tørsløv, small companies pay the biggest price. Multinational enterprises have the resources and experience to direct money offshore, but that’s not the case for small and medium-size American firms, which end up paying a full American tax bill. “This makes for some seriously unfair competition,” says Tørsløv.

Davies argues that if offshore money were to come back to the U.S., it could just as likely end up in low-tax accounts. He points to President George W. Bush’s tax amnesty in 2009, when $300 billion in profits from U.S. companies with foreign subsidiaries were repatriated — 92 percent went to shareholders, not to federal coffers. “Even when the money comes back,” Davies says, “most of it ends up contributing to the wealth of a small share of the population.”

For more on this story go to: https://www.ozy.com/acumen/worlds-biggest-corporate-tax-haven-its-no-paradise-island/87954