Published on 8 November 2022
Christian Aid Ireland’s Head of Policy and Advocacy Conor O’Neill highlights the impact of Ireland’s tax policy on developing countries and our work to challenge it.
Christian Aid has long argued that corporate tax avoidance is a major barrier to tackling poverty. We’ve previously estimated that harmful tax practices by companies and wealthy individuals rob poorer countries of more than $400bn per year – more than twice the amount given in official overseas aid.
As part of our campaigning on this issue we’ve been working with a coalition of Irish, Ghanaian and international NGOs to highlight the problem at UN level. As a result of this work, and for the first time ever, the UN Committee on the Rights of the Child is reviewing Ireland’s role in facilitating tax avoidance, and crucially the impact it can have on the lives of children in developing countries. Christian Aid Ireland will be in Geneva this month to provide further input as part of this process, which you can read about below.
Tax and human rights
We know from our work around the world that tax policy is crucial for the realisation of human rights. It shapes states’ capacity to raise revenue, fund essential public services, and fulfil their human rights obligations. Academics, UN experts and civil society organisations have all emphasised this link, particularly in relation to economic, social and cultural rights – without fair and functioning taxation systems, efforts to deliver adequate housing, healthcare and education and to tackle poverty and inequality are badly undermined.
However, this doesn’t happen neatly within national boundaries. In today’s modern global economy, multinational companies use complex corporate structures to shift profits across borders into low- or no-tax jurisdictions, dramatically reducing their tax bills. These practices are particularly harmful to developing countries, which are more reliant on corporate income tax than higher income countries. The result is that vital revenue is siphoned away, leaving less money available to pay for hospitals and schools – prolonging a reliance on aid, exacerbating inequality and keeping people trapped in poverty.
Ireland’s oversized role in the international tax avoidance landscape is well-documented, recognised by the European Commission, human right experts, bodies within the US Congress, and academics. A recent working paper by the National Bureau of Economic Research (NBER) found that ‘more than $616 billion in profits were shifted to tax havens in 2015, close to 40% of multinational profits’, and identified Ireland as ‘the number one shifting destination, accounting for more than $100 billion alone.’
In two detailed submissions, first in July 2020 (here) and then in August 2022 (here), Christian Aid Ireland and our partner NGOs set out how specific features of Irish tax law facilitate this kind of profit-shifting.
This includes extensive reliefs and allowances on profits related to intellectual property, liberal tax residency rules, an expansive tax treaty network, and the fourth lowest statutory corporate tax rate in the OECD. Since the 1990s, these policies, in combination with US tax rules, have enabled US-headed multinationals to shelter vast profits from tax, including from sales made in developing countries. The infamous ‘Double Irish’ arrangement, and its many variants, have arguably been one of the world’s most used and widely publicised tax avoidance structures. As an indication of its scale, in 2019 alone Google are reported to have used this mechanism to shift over $75.4bn of profits from worldwide advertising income through Ireland to Bermuda, where the standard rate of tax is 0%.
And while certain structures have closed over time, others have sprung up to replace them. Research from Christian Aid Ireland last year revealed that one of the world’s biggest pharmaceutical companies is using the ‘Single Malt’ tax avoidance structure, successor to the ‘Double Irish’, to shelter millions of dollars of pandemic super profits, including from sales made in countries including Ethiopia and Nepal.
While the Irish Government has engaged with some important reform initiatives, such as the OECD’s Base-Erosion and Profit-Shifting (BEPS) programme, it has strongly resisted others – including EU plans for greater tax transparency, proposals for a UN-led tax convention, and most recently efforts to agree an ambitious global minimum corporation tax rate.
In the latter process, Ireland fought hard to narrow the scope of reforms designed to deter corporate profit-shifting. As a number of esteemed experts and academics, including Nobel Prize-winning economists Thomas Piketty and Joseph Stiglitz, and former UN Special Rapporteur on Extreme Poverty and Human Rights Magdalena Sepúlveda Carmona put it: “This process has been watered down in such a way that it will overwhelmingly benefit rich countries. Proposals for a global effective minimum tax have been rejected in the pursuit of the lowest common denominator of 15%, a success for Ireland, a loss for the rest of the world.”
A demand for tax justice
Growing public demand for tax justice has nonetheless brought increased scrutiny on avoidance, including by UN human rights monitoring bodies. In 2016, the UN Committee on the Elimination of Discrimination against Women (CEDAW) expressed concern regarding Switzerland’s financial secrecy and tax policies and how they impact other states’ capacity to raise revenue and fulfil women’s rights. The EU has strongly argued that Ireland’s aggressive tax policies are undermining competition and the EU’s single market. Successive UN Special Rapporteurs on extreme poverty and human rights have called on governments to stop facilitating tax avoidance, and to recognise the impact this is having on some of the world’s poorest countries.
Politically, this is an important shift, echoing what development organisations and experts have been saying for decades: tax policy is crucial for human rights, and a fairer international system is urgently needed. This focus has only increased as governments around the world seek the resources needed to tackle climate change, respond to inflation and rebuild from the impacts of the Covid-19 pandemic.
Now, in a landmark decision, the UN Committee on the Rights of the Child has ensured that Irish tax policy is reviewed under the framework of another key international human rights treaty: the UN Convention on the Rights of the Child. As a party to this convention, Ireland is obliged to avoid policies that foreseeably undermine the realisation of children’s rights, at home or abroad, and its progress is reviewed at UN level every five years. But as the evidence set out in our submissions demonstrates, Ireland is currently failing to meet these obligations due to its facilitation of harmful tax avoidance.
The next steps in this process take place this month at the committee’s headquarters in Geneva and we’ll be there to provide further input. A full formal hearing will then be held on the issue in early 2023 where an Irish government Minister will travel to be questioned by the independent human rights experts on the committee and defend Ireland’s position. The committee will then make recommendations which, while non-binding, have an important political weight and can increase pressure on the Irish government to act.
By examining the human rights impact of Ireland’s tax policies on children in developing countries, the committee will help to clarify a key principle, long emphasised by those at the sharp end of tax avoidance: a narrow focus on investment is only half the picture. How can Ireland reconcile its role in facilitating tax avoidance with its commendable and hard-earned reputation as a champion of human rights and international development? Justice demands a reorientation that puts principles of international cooperation, equality and human rights, including those of children, at its core.
For more information, please contact Conor O’Neill, Head of Policy & Advocacy at Christian Aid Ireland, at firstname.lastname@example.org