Today the Dáil will debate the tax treaty recently signed between Ireland and Ghana. In theory, the treaty should enable greater trade and investment opportunities for both Ghanaian and Irish businesses.
Working to support Irish businesses seeking opportunities overseas is, of course, a legitimate and important objective of the government.
For developing economies it can also offer opportunities for inward investment and economic growth.
However, there are serious ethical questions as to whether the Irish government has done all it can to ensure that Ghana- a country where almost 4 million children live in poverty- is adequately protected from the kinds of cross-border tax abuse that blights African economies.
The IMF for example, estimate that developing countries lose more than $150 billion each year in tax avoidance by multinational companies. Much of this is enabled through imbalanced tax treaties.
While from Ireland’s perspective Ghana may be a relatively small investment and trading partner, the new Ireland-Ghana double tax treaty matters greatly for Ghana.
According to Ghanaian statistics, since 2012 Ireland has become Ghana’s largest source of foreign direct investment (FDI) and since 2015 Irish FDI constituted a quarter of Ghana’s entire reported foreign direct investment stock. Limiting Ghana’s taxing rights over income, profits and economic activity between Ireland and Ghana as the treaty does, may have a significant impact on Ghanaian tax revenues and consequently on its ability to deliver basic services to its population.
In fact, in its current format, the treaty contains none of the measures against tax avoidance that the OECD has called "minimum standards" for tackling tax dodging - measures which last year (before the treaty was signed in 2018) the Irish government promised it was committed to including in all Ireland's tax treaties.
The treaty ratification also comes at a time of growing consensus from decidedly non-radical institutions such as the IMF and the OECD, that tax treaties carry risks, especially for developing countries, opening up conduits for tax avoidance. In 2014, even the decidedly non-radical IMF said that “developing countries…would be well-advised to sign [tax] treaties only with considerable caution”.
Strikingly, the government has continued with this treaty despite evidence from their own officials within the Department of Foreign Affairs and Trade (DFAT). Last week, Minister of State Michael D’Arcy told the Oireachtas Finance Committee that double tax treaties “are a key element in stimulating trade and investment” and that their benefits for developing countries are “well known’.
However, according to an internal memo released under an FOI request, a senior member of the Department’s Africa division warned at the start of negotiations with Ghana, that the evidence that Double Tax Agreements (DTA) stimulate trade and investment is inconclusive.
The Finance Department’s own “spillover” analysis of Irish tax treaties with developing countries, released in 2015, similarly found that these treaties’ impact on Irish investment in developing countries was “insignificant”, and could find no evidence of any impact on trade patterns. DFAT also warned ministers that such treaties can be “used to channel money between jurisdictions to minimise tax payable, particularly if withholding taxes are minimised to encourage investment” – which is exactly what this new treaty does.
Despite all this, Ireland continues to proactively to expand its tax treaty network. Of eight new treaties currently awaiting final signature and/or ratification, five are with developing countries- including Ghana.
Of course it will also be up to the government of Ghana as to whether they ratify this treaty. No developing country though negotiates such deals on a level playing-field. The pressure from international institutions, multinational companies and investors on African countries to forego tax revenue to secure FDI can be significant and can influence negotiations.
If Ireland is serious though about helping developing countries moving beyond a reliance on aid, it will not demand that they give up vital public revenues in return for Irish investment.
The government has already promised, belatedly, to offer Ghana a protocol to the treaty which would insert key protections against tax-dodging abuse.
TDs should today insist on a clear timeline for the government to do this, and a requirement that in this protocol the government also offers Ghana some key protections against losing revenues to Ireland.
Author: Sorley McCaughey, Head of Policy & Advocacy at Christian Aid Ireland