Posts Tagged ‘EU’

Tax is evil; there I said it. The organised extortion of money by the state sanctioned by a threat of violence or incarceration is something I principally object to. However I am realistic enough to understand that “we the citizens” need to make a small contribution towards the running of the state apparatus. A flat tax would be the most equitable way to do so and would allow for the abolition of all tax loopholes as well as so-called stealth taxes, sales tax, duties, excise and what more.

However I am digressing from the topic of this blogpost….

Irish corporate tax and specifically the low rate is a hot topic of conversation both in Ireland and across the EU. The debate mostly centers around whether Ireland should be allowed to hold on to this low rate which on the face of it has attracted such giants such as Google, Facebook, Linkedin, Dell, Microsoft, Apple and a whole raft of other big players to the country. Other EU countries rightfully seem to think that this low corporate tax rate (12.5% compared to for instance 28% in the UK) gives Ireland an unfair advantage. It turns out that they might be wrong…

During an exchange on Twitter with the fabulous @dhkirk yesterday it expired that even though the corporate tax rate is substantially lower than most other EU countries most of these multinationals only pay that tax rate on a small percentage of their revenue. See, @dhkirk was researching this to ascertain the validity of InvestNI’s statement that a lowering of the corporation tax in Northern Ireland would result in it being just as attractive to large corporates as the Irish Republic. You can read his blogpost here.

The common perception is that the large corporates sluice all their European revenues into their Irish corporate entity through the use of licensing agreements allowing them to only pay Ireland’s 12.5% corporate tax rate on not just the Irish revenues but almost *all* revenues across Europe. It now turns out that this is only part of the chain. Apparently because of a quirk in Irish law, if the Irish subsidiary is controlled by managers elsewhere, like the Caribbean, then the profits can skip across the world tax-free. This (legal) construction is known as a “Double Irish Sandwich”.  Let’s try an example; ACME Inc has offices all over the world. It now register a corporate entity in Ireland. Let’s say it’s Called ACME Eire Ltd. Management of all patents and intellectual property regarding ACME Inc’s products is transferred to ACME Eire Ltd. At the same time ACME Inc. sets up a corporate entity in a tax haven (such as the Bermudas, Cayman Islands etc.) It then assigns the *ownership* of all patents and intellectual property regarding ACME Inc’s products to the corporate entity based in this tax haven. This construction than results in all ACME Inc. global companies globally are billed for us of these patents and intellectual property by ACME Eire Ltd. These fees paid to ACME Eire Ltd. can be as high as most of their revenue. ACME Eire Ltd. in return pays an “administrative fee” to the entity registered in a tax haven. ACME Eire Ltd. only pays the low Irish corporate tax rate over a fraction of its revenue. In the case of Google it reduced the companies taxable revenue in Ireland reduces its gross profit from €5.5bn to just €45m.

It appears that it means that it’s not Irelands low corporate tax rate which makes it an attractive location for multinational but rather their specific tax legislation allowing this construction. The NY Times has produced an excellent illustration of how this works. Click on the image for a detailed explanation.

Based on this it would appear that all the campaigning for Ireland to hold on to its low corporate tax rate as a change might scare away these large multi-nationals might not have been fully informed. Full disclosure requires that I admit that I have used this argument also. However I have always followed it by stating that Ireland should develop other means of being competitive than just being the cheapest tax country. Based on the information outlined above I would suggest that an increase in the corporate tax rate might not have such detrimental effects. But please remember that I am *not* a tax expert.

Following are some sources of supporting information:

http://www.irishtimes.com/newspaper/finance/2012/0514/1224316065838.html

http://www.businessworld.ie/livenews.htm?a=2941771

http://www.guardian.co.uk/business/ireland-business-blog-with-lisa-ocarroll/2011/mar/24/google-ireland-tax-reasons-bermuda

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Today is referendum day in Ireland when every Irish adult has the opportunity to vote for or against the ratification to the Fiscal Compact.

As I’m not an Irish citizen and my 16 years of paying tax here do not give me a right to vote I have to watch this one from the sidelines. However for those of you who do not know what this Fiscal Compact is I have put together a simple visual primer.

Enjoy:

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DISCLAIMER:  I am no financial analyst, economist and any knowledge that I have in these areas is largely gained by reading. Hence the article below might contain wrong or incorrect conclusions or be just plain hyperbole on my behalf. However the facts mentioned and sources named are correct.

Like so many people I was amazed when I read the news last night that Germany had “found” 55 billion euro which had been overseen through an accounting error. The whole thing just doesn’t make sense. Because, to find 55 billion, you have to first “lose” it. And to put it frankly what moron loses 55 billion?!

So I decided to read a bit more about it and discovered some astonishing facts:

  • Apparently the 55 billion is equal to a ridiculous 1% of the country’s debt to GDP ratio. “Germany’s 2010 debt-to-GDP ratio also drops, to 83.2% from the previous 84.2%…
  • This money obviously only exists electronically so is this just some creative QE?
  • the value represents a quarter of Germany’s new ESFS obligation.
And then I spotted this statement from the Telegraph:
the German government welcomes the substantial progress FMS Wertmanagement has made in reducing the portfolio it took over from Hypo Real Estate a year ago”.

And that’s when a light went on in the back of my head. Something about Hypo and the Irish banking crisis. I recalled reading some references to Hypo & Ireland on the excellent Golem XIV blog. A quick search there led me to the articles I was thinking of. The information contained therein showed a clear historic link between the Irish banking crisis, Depfa and Hype Real Estate.

For those who aren’t already familiar with the Depfa and HRE story, here it is in a very small nut shell.  Hypo Real Estate was the huge German bank which we were all suddenly told, back in 2008, had to be bailed out by the German State at vast cost. But, they said, they had no choice, because Hypo (HRE) was so large and its debts so huge that if it collapsed it would, at the very least, bring down German banking.  It was Europe’s AIG – to big to be allowed to fail. Then the back story emerged.  HRE had bought ‘Irish’ bank Depfa at the top of the market at almost the same time as RBS bought ABN Ambro.  Both purchases were insane and both killed the purchasing bank.

the collapse of HRE was in fact due to a huge funding crisis at Depfa always referred to as ‘its Irish subsidiary’.  From that came the notion that Depfa must have hidden its true state from HRE

The above has apparently created a lot of bad blood in German financial & political circles. Depfa is seen as an Irish problem and hence it is the fault of the Irish that Depfa nearly killed Hypo. Some say that the Irish government should have bailed HRE/Depfa out. This suggestion is in itself ridiculous for one single reason alone. At the beginning of this year Ireland’s IMF bailout was in the region of 85 billion euro. The HRE/Depfa bailout alone stood at nearly 100 billion euro at that point…

The article goes on to explore the reasons why Depfa had located itself in Ireland. Apparently the Irish Financial Services Centre had built up a bit of a name as a “financial wildwest”. Regulation was loose or not enforced.

Money in various shades of shadiness flowed to Ireland.

What gave Ireland the edge over Luxembourg was it offered faster turn arounds on setting up deals and far more lax regulation.

So in short, Depfa was a German bank based in Ireland because of its lack of strict regulation. This allowed a lot of financial transactions and off the books accounting which was not possible in Germany itself. On of the main instruments for raising funds by Depfa was the so-called pfandbrief a triple-A rated German bank debenture. At the time of the Depfa bail out there were €806 Billion in Pfandbrief outstanding! If Depfa had gone down, it would have taken the AAA rated dependability of the Pfandbrief with it. There was no way that Ireland would have been able to absorb this astronomical amount so Hypo buying Depfa was probably the most logical option.

To now read that 55 billion was just found on Hypo’s books that wasn’t there makes me extremely sceptical. In my opinion it’s just another case of smoke and mirrors that EU financial decision-making is full of. For years now we have been forced to pour vile amounts of money into black holes to pay for debts that we didn’t incur. None of the bailouts benefit the people who are actually paying for it and the EU/ECB seems to be set on accelerating this midnight train to nowhere.

It’s time to put a stop to this.

Disclaimer: I am not an economist, finance expert or politician. Far from it. So you won’t see any statistics, graphs, academic references or even the slightest shred of evidence to back up my assertions and conclusions. What you will read however is my view of the current European (and global crisis) based on following a variety of news sources, discussions with people who are much smarter than I am, an ability to recognise bullshit and a healthy dose of scepticism.

Take one look at the current situation: Greece has had one bailout and is looking at a 2nd bailout, Ireland has had one bailout, Portugal is being bailed out and Spain will quite likely follow shortly. In each of the bailed out countries a series of austerity measures is being applied. Services are being cut, taxes are being increased, levies are being introduced etc. In short for the citizens of these countries the cost of living increases drastically. The main cause of the increase of cost of living is an increase in charges by the state for services provided to its citizens. Services that in principle should be funded by the already paid income taxes, sales taxes and social taxes. However the revenue from those sources has been squandered. Instead what we get now are higher & more taxes and fewer services. Private citizens and the private sector are being dealt hammer-blow after hammer-blow. Government deficits have grown to astronomical proportions but even bigger amounts of money are being used to rescue the banks. To what benefit one might ask?

That is indeed the biggest question in this whole twisted tale. Qui Bono? Will this period of austerity caused by fewer services, higher & more taxes and rapidly rising prices bring us to an eventual recovery? The answer is: probably. But another consideration is how long will this take? Will is take 5, 10 or even 25 years? My estimation is that it will most likely be 25 years or more before we see any actual benefits and economic stability if we keep walking down the austerity road.  There is of course a different option. Forget about the “burning the bondholders” argument. Most bondholders have already been repaid. What we can do is restructure the loans, because that’s what they are, that have been forced upon us by the IMF/ECB. We can demand a longer running period, a lower interest rate or even a reduction in the capital. Because that is where the real truth is hidden, neither Ireland, not Greece, not Portugal will ever be able to pay of the loans forced upon them. The EU & the IMF are well aware of this and what we are witnessing is not an attempt to rescue the economies of these countries as it is wholesale asset stripping.

When the shit hit the fan in the world of global finance back in 2007/2008 and it became clear that banks all over the world would just fail overnight the people at the top of the financial foodchain decided that they could never let this happen. So these chose a devious and callous option. In the case of the EU this meant that governments would be strong-armed into accepting loans of an astronomical size and at sometimes punitive intrest rates simply to hand this money to the banks thereby ensuring the continued existence of the financial system. The fact that these loans could never and would never be repaid was not an issue for the (private) banking sector. It was for the IMF/ECB though. Hence they included clauses in the “bail-out agreements” that would hand control of the bailed out countries economic & financial policies over to them. The EU/ECB would dictate internal politics….

What we are witnessing now is wholesale assets stripping on a scale not witnessed since the Soviet armies occupied a large part of Western Europe at the end of WWI. At the direction of the EU bureaucrats formerly sovereign countries are being told to sell of state assets in order to fund loan repayments to the ECB/IMF. The fact that the sale of the these assets will quite possibly leave the country in economic ruination with no state-owned industry or other assets and still insurmountable foreign debts to repay does not seem to matter. It is a case of “get it while you can”. For example Greece has been strong-armed in selling 10% of the state-owned Telecoms company to Deutsche Telekom.  It is no surprise that this is a German company. I expect more chunks to be sold of and also “suggestions” that Ireland sell off Aer Lingus, ESB, Coilte (oh wait that’s already happening) and more. Visions of the Soviets dismantling factories and shipping them lock, stock and barrel to the motherland come to mind. None of this is happening to the benefit of the individual countries or it’s citizens!

So what can be done? There is really only one option; stop playing ball. We need to step out of the EU to regain economic sovereignty and use this renewed independence to dictate the rules of the game. We need to state how much we are paying back, over what time-frame and at what rate. Nothing else will do. This will be a painful step to take as it will bring cause a period of economic hardship but this period will be significantly shorter than the one that will be caused by playing along with the ECB/IMF and whatsmore we will emerge out of this as a healthy economy.

It’s really a simple & straightforward solution but I do not think that any of the governments of the respective countries has the balls or willingness to implement it.

 

/end rant

In July of this year I blogged about an announcement that 20 million euro would be allocated to job creation for ex-Dell workers (and other people who have recently become un-employed) in the Limerick region. As I was looking to raise funding to kick-start the Greenhouse Incubator I discussed this funding with a few ministers. What I wanted to know is if a relatively small amount of this funding could be made available to the Greenhouse incubator. I had been working on getting the Greenhouse off the ground since January this year and had everything arranged bar the funding. I had a large office (rent-free) I had mentors, sponsors, service provider, a knowledge network, atop-class  board of advisors etc. All I needed was just a little bit of funding to pay for the operational costs and I would be able to create 15-20 jobs within the first 6 months with a forecasted net job creation of 100-ish jobs every 12 months.

A study released last week by the U.S. Department of Commerce’s Economic Development Administration, in partnership with consulting firm Grant Thornton LLP, found that supporting business incubators, including those multi-dimensional support programs that help scientists with innovative ideas turn them into successful companies, is one of the most efficient and effective way to create jobs.

I was disgusted to hear that ALL this money would be allocated to FAS and would only be spent on public sector “job creation” projects. This is simply unacceptable as FAS has been proven over the last year to be corrupt & incompetent. It is simply unacceptable that in a period in which the public sector has been proven again & again to be either unable to perform its task or is staffed by a large number of civil servants who only interested in serving themselves.

At the time I blogged about it, spoke once or twice on the radio on the topic but I also emailed a number of ministers as well as Vladimir Spidla, the EU Commissioner for Employment, Social Affairs and Equal Opportunities. A few of the ministers replied letting me know that there wasn’t really anything they could do for me however what disgusted me most is that I received a so-called “read confirmation” from Vladimir Spidla’s office but NEVER RECEIVED A REPLY!! So not only does the Irish government not give a damn about actually being credible and trying to solve the employment crisis, the EU commissioner in charge of allocating a large chunk of this funding also does not think he needs to at least have someone in his office reply to a valid query. This puts the whole Lisbon Treaty in perspective also.

We are now 4 months on from my original blogpost and what has been done in the public sector regarding job creation? Nada, nothing, zilch, niks, niets! There have been meeting after meeting of taskforces, committees & working groups and enough discussion has taken place that if words were water the plains of the Irish MidWest would have been flooded from Portloaise right up to Ennis…But has all this created a single job or stimulated a single unemployed person to start their own business venture? NOT A SINGLE ONE!

We are in a situation where brilliant entrepreneurs can’t even get help in raising 20k to go a Superstar event in the US to promote & kick-off their new venture. We live in a country where the best thing in start-up support is entrepreneurs themselves chipping in 50 euro each into a fund for new ventures. We live in a country where the only support I can get for organising a series of 5 Business Camps comes from the private sector and individuals (and is barely enough to cover the costs). We live in a country were the government is time after time proven to be unwilling to find any meaningful solutions for the current economic crisis.

We need to make clear to the people running this country that efficiency is not measured in money spent or money saved. Efficiency is measured by result. If we let this 20 million be gobbled up by FAS (with the predictable negligible results) the government will parade it around the halls off the Dail as a great effort because they “invested 20 million euro in job creation”…

We need to demand that at least half of this funding is spent on private sector run projects or we might as well take all this money and use it to stoke the hearths in our houses while the dwindling light of the Irish economy slowly but surely fizzles out…

I for one will not stand by and let that happen!

96_G

I recently emailed all Irish MEP’s in relation to an European Parliament vote on amendments in the “Telecom Package”.

The content of the email was fairly straightforward and brought a few important issues in regards to this vote to their attention and asked if they could let me know their position on these issues.

The response I got to my email was shocking!

TWO! Yes, that’s correct. I received 2 replies. As we have 13 Irish MEP’s that’s a 15.38% response rate. Interesting fact is that both responses were from female MEP’s. Respect & thanks to Kathy Sinnott & Mary Lou McDonald.

But that’s not it; over the last few days I have received notifications via MS Outlook that 4 MEP’s (or their staff) have deleted my email without reading it! Now I do realise that the issue in question was voted on last week but this indicates three possibilities:

  1. They did not read my email before the vote.
  2. They did not bother replying.
  3. They regualrly delete emails without reading them.

I’ve been asked to “name & shame” so here it goes:

Jim Higgins, Eoin Ryan, Marian HarkinSean O’Neachtain, do not think the need to read or reply to emails. This does not include the remaining 7 MEP’s who have not replied either. Well done!

Let this be a warning to anyone considering voting for these muppets!

muppetbunch