been a financial cesspool. But the monster
is now reaching out to other countries in the
West that enjoy the rule of law (the one which
says that the rich have no laws).
So, the future Euro banking centre will likely
be in Ireland now that it has been taken over
by the Troika, in the name of broke German
banks that are looking for refuge.
Ghost companies hang out together in the Shadow World.
checkit: Irish
times
No
desks. No staff. No tax. Ireland’s shadow banks
Ireland’s
unregulated and barely visible ‘shadow banking’ industry is 10 times the size
of our GNP. Is it a benefit or a threat to the economy?
Carl
O'Brien, Caelainn Barr
Sat,
May 11, 2013, 08:40
First
published: Sat, May 11, 2013, 01:00
So
many companies are listed in the marble-tiled, plant-filled foyer that there
are no brass plates or printed guides. Instead, it takes a computer to search
through them all. This is 5 Harbourmaster Place, a Celtic Tiger-era
chrome-and-glass building at the edge of the International Financial Services
Centre, in Dublin.
It
might not look big enough to house them all, but this modest-sized building is home to about 250 companies. One is
Orpington Structured Finance I. It has gross assets of €1.7 billion, which would make it one of the most valuable firms in
Ireland. Except it has no employees. It has no buildings or machinery. Nor does it pay any tax.
It
is one of hundreds of so-called financial-vehicle corporations, which are
companies set up to house or trade in
securitised investments, in other words to package and resell loans.
It’s
part of a much wider area of financial activity known as shadow banking, a term coined five years ago when the US
economist Paul McCulley defined the area as the “whole alphabet soup of
levered-up non-bank investment conduits, vehicles and structures”.
The
term spread almost as fast as the financial crisis, and regulators and
governments have been mobilising ever since to try to map this largely
uncharted world.
It’s
big business: the total value of assets in the Republic’s shadow-banking sector, at €1.7 trillion, is almost 11 times
the State’s gross national product, which is the total value of all
products and services produced in a single year.
Supporters
of low taxes and multinational-friendly policies say these companies help
create much-needed jobs in a country with 14 per cent unemployment and stagnant
growth. The wider IFSC employs an estimated 32,000 people, for example, and
contributes about €1 billion in
corporation tax. Of those employees, about 1,000 work in companies linked to
the securitisation industry. If Ireland weren’t courting this kind of
business, the argument goes, it would end up in rival jurisdictions, such as
the UK or the Netherlands.
But
detractors question whether the benefits really stack up.
Much shadow-banking activity
is set up to attract little, if any, tax. This reliance on aggressive tax avoidance,
critics say, distorts the country’s industrial policy and leaves it vulnerable
to appealing changes in tax rates around the world.
Moral argument
There is also a moral argument: companies and
people who don’t pay a fair proportion of tax shift the burden on to those who
do. At a time when PAYE workers and the middle classes are bearing the brunt of
tax increases, many grumble that corporations are able to escape without paying
their share.
On
Tuesday, at a meeting of the EU’s finance and economics ministers, issues such
as aggressive tax avoidance and profit-shifting across borders will be out of
the shadows and in the spotlight.
In
its role as president of the council of the European Union, the Government says
it is leading efforts to tackle this area.
Yet
Ireland has been under pressure from some of its neighbours to tackle its
low-tax regime and plug loopholes such as the “double Irish”, which allow
Google and other US multinationals to lower their tax liabilities dramatically.
Although
Ireland has avoided being labelled a tax haven by international bodies such as the Organisation for Economic
Co-operation and Development, some academics say it deserves the name.
Nicholas Shaxson, an associate fellow of the
UK think tank Chatham House and the
author of Treasure Islands , a book about the offshore system, says Ireland is
a tax haven by his definition in light of the country’s regulation of financial
services.
“What
I have seen in Ireland does fit so closely the pattern I’ve seen again and
again in tax havens, which is this willingness
to do what the financiers want, really not ask any questions, and to have all sorts of measures for
keeping Irish democracy out and keeping debate out of the way,” he says.
“That’s
by either doing things behind closed doors and the shaping of a national
consensus that ‘this is the goose that lays the golden egg and we mustn’t do
anything to trouble it’ . . . to arguments that all this stuff is going to go
overseas if we touch it, so let’s not rock the boat.”
Shaxson calls this “the
captured state”:
a world in which policymaking has been
largely taken over by financial interests that can pick and choose between
jurisdictions and in effect write the laws they need. “That happens in its
purest form in the very small tax havens where there is just no local democracy
to do anything. There is a little bit of a counterweight but it isn’t very
strong in Ireland.”
Others
go further still. Dr Conor McCabe of the Equality Studies Centre at University
College Dublin, who is a campaigner in the area of tax justice, says companies
can ride roughshod across competing jurisdictions, extracting what they want
and contributing little. “They want all the pluses of a modern democracy while
seeking to reduce their obligations to zero. They are behaving like parasites,”
says McCabe.
The
financial services sector insists Ireland has benefited hugely from its
competitive tax regime through large-scale employment and investment.
“Ireland is not a tax haven. It has an
excellent network of treaties with other jurisdictions and operates a
simple and transparent corporation-tax system,” says Fergal O’Brien, the chief
economist with the employers’ group Ibec, which represents financial services.
