Here's a neat trick you learn when debating: Pick any argument, discard the spirit of the argument, its internal consistency, its logical conclusion and practical significance, and simply focus on one definition or concept used by the other side. Produce 'evidence' that the definition the other side use is flawed, thus undermining their argument's foundation, and retire to the pub, assured of victory.
Or not.
This mode of argumentation was debunked thousands of years ago in Aristotle's On Rhetoric, and satirized in the story of Procrustes and his bed.
Very few people are convinced by such a rebuttal.
Today's Irish Independent carries a piece by Brian Keegan, Director of Taxation for Chartered Accountants Ireland. Brian takes my argument that Ireland is a tax haven, and attempts to unpick my argument using a specific definition of the term 'tax haven' from the OECD, which I'm aware of, and which I refer to in the piece, albeit in a joking fashion. (As a senior accountant, Brian is also against jokes).
Mr Keegan uses the OECD's definition of a tax haven to make his case that Ireland isn't one. The trouble is that Ireland, like Switzerland, is deliberately excluded from the 1998 OECD definition because of the way the definition is defined. Many other definitions and scholarly studies (1, 2, 3, below), do find that Ireland is indeed a tax haven, and share many, if not all, of the characteristics of a tax haven.
Please note that I'm not saying Mr Keegan was being deliberately disingenuous in choosing a definition that suited his argument. That said, he should be aware that though the OECD's definition has changed over time, at times the OECD White, Grey, and Black lists have indeed included Ireland. He should also be aware that other measures of tax havens do include Ireland, for example the FSF-IMF 2000 definition (see reference 4).
Most importantly the reason Aristotle was able to see the holes in this type of argumentation thousands of years ago was because it is such a poor way to disprove one's position. All I have to do is show another definition that supersedes Mr Keegan's, or any evidence that his definition only partially covers the set of concepts or phenomena I'm discussing.
The burden of proof rests on Mr Keegan, as a official representative of Chartered Accountants Ireland, to show that Ireland is not in fact a tax haven.
In other words, do we, or do we not, help large companies pay less tax than they would otherwise? My colleague Dr Killian's report shows quite clearly that we do, and we have done for many years. Mr Keegan concedes the point immediately in his article when he writes that "We believe that it is legitimate to compete on taxation matters. It is an article of faith with the European Commission in the context of the single market that competition should also be possible on tax rates."
http://politico.ie/crisisjam/8291-corporation-tax-cornerstone-sinking-economy-stone.html
Although I argue that the continuation of the current tax regime is more detrimental to the economy in the medium term that is ever acknowledged.
Stephen I think you are right but what is your motivation for wanting the Irish to come clean on our corporate tax haven status?
There are not many British academics going around saying Britain should fess up to being a third world arms dealer even though this shady enterprise earns their exchequer billions.
Also you should have called Ireland a 'corporate tax haven'. It isn't a tax haven for anyone else.
Hi Eamonn, my motivation is simply to make it clear to the public that the taxation arrangements in the US can have a serious impact on our future, simply because we are a tax haven, of sorts. Once we recognize this as a threat (exactly equivalent to the patent cliff in pharmaceuticals) then I think we are in good shape to try and counter some of these threats, or at least make sure they don't catch us unawares. Thanks for the comment!
Doesn't Ireland also have one of the lowest income tax rates in the Western World?
http://www.eapn.ie/eapn/policy/resources-on-taxation/tax-in-ireland-and-europe
Oh dear, there's rather a lot of crooked thinking here.
First off, Aristotle would be among the first to declare that it's a crude rhetorical device to declare something to be so and then state that it's the responsibility of others to disprove your thesis.
Second, the FSF report you cite was not a report on tax havens. It was a report on Offshore Financial Centres (they're not synonymous). It cites with approval some of the OECD publications/works on tax havens.
To the man in the street (whom you were addressing in your piece in the Indo), "tax haven" has a negative connotation far closer to the OECD definition (ie including blacklist aspects of harmful tax competition, lax (or no) tax enforcement and banking secrecy) than to the OFC definition in the FSF Report you are now clutching at.
I know it's in the nature of academia to be polemical. It's good sometimes to stimulate populist debate but polemic is no excuse for irresponsibility. I've read your book - you can do so much better.
@ Peppe, thanks (I think) for the mostly kind words. I'm not clutching at the FSF definition at all, there are others I could have used like the definition from Tax Justice, etc. It's sort of my point that simply changing definitions doesn't blunt the point I'm trying to make. As for Aristotle, you'll be aware that Aristotelian rhetoric is proof-centered, meaning that if Mr Keegan wants to disprove my point, which I feel is well made, then he must do so with evidence of his own.
I guess my point in writing the original piece came out of some research I'm doing on the Irish economy at the moment, which I think clearly shows we are a tax haven. I think this is a serious issue people should be aware of. I think it’s dangerous for us to proceed as if we aren’t a tax haven. It is a bit like policy makers not noticing our pharma exports are about to fall off a funding cliff–it’s an exigent threat to our recovery we should take account of.
Hi Stephen, if the taxation arrangements in the US were to change is such a way that Ireland was no longer a tax haven, how much do you estimate it would cost the Irish exchequer? Has any research been done that may help us answer this question?
Stephen,
I agree - i thought the piece by Mr Keegan actually bore little relation to your original piece - and certainly did not respond in any way to the spirit of your piece nor the practical implications of it, so I am not sure what the point of it was.
My reading of your piece was that, yes, the evidence shows that Ireland is clearly effective in assisting companies to pay less tax than they would do in other jurisdictions, we benefit from this, this is a good thing, but let us acknowledge this for what is it is, in order to better understand the planks in our industrial policy, and threats to same from the evolving and responding strategies of our competitors, so to be able to adjust our strategy as needs be in response. I don't think you were saying much more than that were you?
Hi Senan I've not seen any research on the topic, which is a pity.
Hi Mick, I was saying exactly that. Thanks for actually reading the piece!
Stephen, I do support and agree with an awful lot of what you write but 'tax haven' is an emotive and pejorative term that you simply declared to apply to Ireland without stating precisely what you meant by it.
As a commercial lawyer, I probably have an unusually particular perspective on tax havens and my (unscientific) definition of a tax haven includes elements such as brass plate companies, prevalence of tax evasion, lax anti-money laundering laws and banking secrecy. Ireland has none of those things and we do ourselves a major disservice if we (inadvertently or otherwise) associate ourselves with countries that do.
Lots of multinational groups benefit from Ireland's tax system but they do so only in a context where they have significant, real and tangible operations here. For example (and without wishing to single them out), Ireland is one of Intel's top three global locations. Ireland is also becoming a world leader in cloud computing centres for reasons entirely unrelated to our tax rates (who'd have thought there'd be such advantages to the Irish weather?)
You mention Tax Justice and I'm glad you did. I'm sure you're aware they've categorised New York and London as 'tax havens' on some measures: see http://bit.ly/yZlyEv. If you meant by your article that "Ireland is a tax haven like London, New York, Israel and Luxembourg" then I would agree entirely.
But that's not how I read your article - unqualified as it was. It seemed as though you were saying that "Ireland is a tax haven like Bermuda, Aruba, Cayman Islands, Nauru and Niue". I believe most (if not all) readers will have done likewise. I hope you will agree with me that that statement is not accurate. If you get the opportunity in future to correct/clarify/be more precise I think that would be useful.
I think it distracts from the core questions to challenge on theburden of proof -- the debate isn't before judges who must determine which procedural rules they have to follow, and even if it did fall to him, for the reading public, we [dare I speak for the public?] will judge the issues on the evidence presented to us rather than on procedure.
Can you give your view on this thought: aframework for thinking about corproate tax in Ireland consists of three issues.
A purely analytic one (I think) is the one that provoked you to write the Indpendent piece: what is likely to happen to the Irish economy if the USA government changes its corporate tax rules?
A second question could be "what ought our corporate tax rate be"? Yeah, I know, a simple and straightforward question. but there you go, but it is part of the problem some people have with the "tax haven" reference, so I think it needs to be debated.
And the second point that the term "tax haven" prompts in my mind is that a tax haven needen't be a single, ring-fenced entity. I don't understand the Dutch Sandwich/Double Irish, and I understand that it includes a bona fide tax haven in Bermuda, but it isn't simply that Bermuda is where the taxable bits of the enterprise get to be housed: it involves Irish, Dutch and USA operations and Irish, Dutch and USA tax laws as well. Whatever rate we havem shoukd we not be looking to tackle that kind of global wheeling dealing designed to do states out of tax?
Stephen,
I appreciated your piece in the Independent and agree with much of what you said about the threat of Ireland's tax regime to others, but perhaps chiefly to Ireland itself.
I have worked leading a global tax justice campaign for a few years now and over the course of my work have spent time with tax lawyers from Bermuda, London, Jersey, and Tax Directors from FTSE100 and Fortune 500 companies - as well as some of the academics and officials that developed some of these definitions, and many of the activists that challenge them.
Everyone argues over the definition of 'tax haven'. Language is the gift of the offshore world. I once sat at a lunch being told of the 'neutral tax complexion' of a particular 'international financial centre'. It's an easy diversion tactic and not that helpful. Better to talk about the effects of policies and how that might impact real people's lives.
The thing that makes me sad about Ireland is that no one is willing to have a serious debate about these issues. Any questions about the tax system get drawn into the intellectual funnel of "12.5% is non negotiable" and anyone who questions it seems to be told they are unpatriotic. Despite the fact that ignoring the problem.
Yet, the fact that the US IRS are taking very aggressive action on US citizens (corporate or warm blooded) and the effect that that might have on the Irish economy seems to be completely ignored. Just look at what the US is doing with Switzerland, UBS and it's FATCA legislation - it is pursuing very aggressive strategies. I personally think this is a very good thing - in the case of evaders hiding money in Swiss bank accounts.
When it comes to Ireland - if one is to pursue a low rate, so be it - but be aware of and manage the risks. Even if brass plate operations aren't used, the incentives for a firm to book profit that is beyond their substantive business operation on the country is strong. And it is easily done. Just look at the Google case. Whenever you build an economic model on other peoples loopholes, there is a risk those loopholes get closed. I sat in Washington DC having a beer with an IMF official in September who told me about the discussions being had about closing the 'Double Irish' loophole that some argue is the only reason Google is in Ireland.
There needs to be a serious debate about economic strategy - one that isn't dependent on allowing firms to get out of paying their way elsewhere. Is that all Ireland has to offer? We need an economic strategy that is diverse, stable, innovative and builds on our many strengths.
And we need a tax system that challenges inequality and ensures there are resources to care for the people in Ireland. That's the conversation that needs to be had in my view. And I hope with all that has happened that there will be space to have it.