Last week I wrote about how corporations such as Microsoft, Google, eBay, Starbuck and Amazon have designed their tax operations in Britain so that they pay little tax in the UK. Most reasonable people believe that companies should pay tax in the jurisdiction in which they make their profits.  Even the British Prime Minister,  David Cameron admitted in Parliament on October 24^th 2012 that he was not happy with the way transnational corporation avoid paying taxes.[1] During the ensuing debate it was pointed out that Amazon, which is based in Luxembourg and owns Kindle, has a big advantage over UK-based book stores such as Waterstones which has to pay VAT at 20pc. The company has also been criticised for avoiding corporation tax, despite being Britain’s biggest online retailer with sales of £3.2bn last year.[2]

In the December 1997 budget, the Irish Finance Minister, at the time, Charlie McCreevy reduced from 32 percent to 12. percent rate for trading income. Naturally, corporations found this carrot very desirable and many of them registered for tax purposes in Ireland.  By setting up its European headquarters in Ireland, for example, Apple has  avoided paying hundreds of millions of dollars in taxes both in the United States and Europe. Google has avoided paying $2 billion on corporation tax in 2011 in Britain by using a company based at the office of a Dublin solicitor  and a Dutch company.[3]

With fresh accusations that many Transnational Companies are using Ireland to avoid paying taxes in Britain, Ireland’s corporate tax regime will come under renewed scrutiny. The French government, under the leadership of President Nicolas Sarkozy, tried to force Ireland to raise its corporate tax rate so that there would be level playing field in corporate tax rates across Europe.  But studies undertaken by the firm KPMG point out that during the past five years France has effectively reduced its corporate tax rate by offering very generous tax breaks and incentives for such things are research and development and even hiring older workers. The Irish finance minister, Michael Noonan, claimed that the effective corporation tax rate in France is often as low as 8.1 percent.

The fact that Ireland is very generous to corporations, even in a period of extreme financial hardship, does not mean that corporations do not pressurize the Irish government to secure special deals. This is particularly true in the pharmaceutical sector which employs about 25,000 people directly and a similar number indirectly. Despite this massive presence of pharmaceutical companies, the price of medicines in Ireland is one of the highest in the world, 45 percent higher than in Sweden.[4]

In this period of economic hardship for many Irish people, it would make sense if the Health Service Executive (HSE) could buy drugs at a much cheaper price, than it does at the moment. But the drug companies have lobbied the Taoiseach (Prime Minister) to ensure that this will not happen. In a letter to the Taoiseach dated February 23^rd 2012, Miles D White, chairman and chief executive of Abbott Laboratories in Illinois directly linked continued inward investment into Ireland with the inflated price which the Irish State pays to pharmaceutical companies.  It is clear that Mr. White was also speaking for other drug companies when he wrote, “in common with other pharmaceutical multinational organizations, we find it difficult to reconcile a policy of pursuing inward manufacturing investment with an attempt to drive medicine prices to among the lowest in Europe.”[5]

Given that Ireland is a small country, White’s concerns are not just about the exorbitant profits which his and other pharmaceutical companies make in Ireland. His real concern is that a drop in medicine prices in Ireland could have a knock-on effect on the international market. His letter states, “International price-referencing results in pricing in Ireland (could) have a knock-on effect on pricing of medicines in 11 other European countries and 37 countries world-wide.”  Then he threatened the Taoiseach, “driving down the price of medicines across such a large number of export markets for the Irish-based pharmaceutical industry could directly jeopardize jobs in Ireland as it will create substantial pressure to cut manufacturing jobs.”[6] There has been no change in the exorbitant price which the Irish government pays to drug companies.

In the light of such irresponsibility by corporations, Pope Benedict’s Christmas 2012 is welcome.  He called for “the creation of ethical structures for currency, financial and commercial markets.”