Let's say it out loud: Ireland is a tax haven

Recently Enda Kenny spoke at Harvard. His message was simple: we've gone through hard times, we've suffered, and we are ready to get back up and regain our sovereignty. How will we do this? "We've got tax, talent, technology and track-record," The Taoiseach said.

Why did he say "tax" first? Who cares about tax? Will Barack Obama secure re-election by putting taxes first in a programme for national recovery? Of course, taxes are important, but why are they first on the list of things Ireland will do to get itself back up and running again?

I think we all know why tax is first.

It's an open secret, isn't it? Every time you see an announcement about a multinational locating here, or opening a new plant, in addition to the happiness that comes with any new jobs, aren't we all asking: "Why us, why not Singapore or Germany?" I think we know why.

What is the word 'tax' code for in the Taoiseach's speech?

Ireland has repeatedly thumped its pigeon chest in Europe and loudly stated that our 12.5pc corporate tax rate is not for negotiation. We'll hand billions of taxpayer's future taxes over to foreign creditors to pay off bust banks without wincing, but when it comes to a tax rate, we'd rather lose a limb. Why?

One reason is that Ireland is a giant in foreign direct investment, second only to Singapore in attracting money from abroad. This international investment keeps our economy afloat when the domestic level of investment is just covering depreciation. So we fight for the corporate tax rate as a signal that we are still open for this international investment. Again, why?

Another reason usually given for our success at attracting international investment is our smart, well-educated population. Another is the fact that lots of other like-minded companies are locating here. When it comes to online gaming, for example, it's better to be in Dublin than in Silicon Valley. There are a host of other reasons, like our use of the English language and our awesome golf courses, but take the big one, the one we all know about but don't speak about, away, and our smart savvy workforce and our nice green golf courses don't look that attractive any more.

Put yourself in the mind of the CEO of a US multinational. You have billions to invest, on a five to ten-year timescale. You can pick a country, any country. There are more than 160 to choose from. Yet you pick Ireland. Why? It's not like Ireland has been tipping along nicely, providing a solid market into which to sell your goods; or that workers are that cheap; or that there aren't countries all over the world that would subsidise your investment to the tune of hundreds of millions.

As a CEO, you'd like to pay less tax by using a stable, reasonably well governed country to funnel your company's tax liabilities through. As luck might have it, Ireland is such a country.

In 2011, my colleague at the University of Limerick, Dr Sheila Killian, wrote a report called 'Driving the Getaway Car'.

She showed quite clearly how Ireland's tax system can be used by multinationals to reduce the taxes they pay. She wrote on Page 14 that "it is tempting for multinational firms, which have a subsidiary there and another in a high-tax country, to use aggressive transfer pricing practices to shift income into Ireland, where it will face a lower rate of tax". Have a read of the whole report, it's available online.

So let's say it out loud: Ireland is a tax haven.

Tax havens exist to allow large sophisticated companies to pay less tax by funneling profits through financial intermediaries. Ireland, along with the Netherlands and Bermuda, are all modern tax havens. Our leaders may bristle at the pejorative phrase 'tax haven'. They point out that Ireland isn't exactly like a tax haven, in that it doesn't share certain features of a textbook tax haven. Specifically, the money doesn't rest in our account, Ted, in the way it does in Grand Cayman. It is transferred out of Ireland through a network of subsidiaries.

That's why 'tax' is the first thing the Taoiseach chooses to mention in his speech at Harvard. The national strategic imperative to keep foreign direct investment going is overwhelming, and must be maintained at any and all costs. That's why.

Sunlight might be the best disinfectant, but let's be real about the position the nation is in. We should not, under any circumstances, seek to change our taxation arrangements, at least into the medium-term. We need all the investment we can get.

However, if you recognise that Ireland is a tax haven, then you must be aware of the threats we face as one.

Amazingly, the biggest threat we face as a nation isn't the price of oil or the ECB or the IMF, but Barack Hussein Obama.

We will tremble before the IRS. Noises are being made as part of the US presidential election. The fact that so many US multinationals are availing of tax havens abroad is beginning to dawn on a cash-strapped US administration.

If re-elected, Obama may close off the dozens of tax loopholes multinationals currently use, cutting Ireland's recovery off before it starts.