A recent report has found that Ireland is the most profitable country in the world for U.S. corporations.

The report, which was recently published in the U.S. tax journal Tax Notes, found that profits made by U.S. companies in Ireland doubled from 1999 to 2002, while profits in the rest of Europe plunged. While Luxembourg showed greater profitability rates for U.S. corporations, Ireland has a much larger "real economy" and produced the greatest profitability.

The report found a huge shift in the movement of capital towards tax havens.
" In low-tax Ireland, for instance, profits of subsidiaries of U.S. multinationals have doubled in four years, from $13.4 billion to $26.8 billion. Profits from operations of U.S. multinationals in no-tax Bermuda have tripled, from $8.5 billion to $25.2 billion. Not surprisingly, those two tax havens rank as the number one and number two locations in terms of profitability for U.S. corporations operating abroad - surpassing long-time leading investment partners like the United Kingdom," the report stated.

The report, written by Martin Sullivan, a former U.S. Treasury Department international taxation specialist, found that U.S. multinationals made $2.01 profit in Ireland in 2001 for every $1 they made in 1999.

In Britain, U.S. multinational profits dropped sharply to 67 U.S. cents in 2002 for every $1 profit made in 1999. In Germany, profits fell even more, slipping to 46 cents in 2002 for every $1 made in 1999.

While U.S. corporations in Ireland were involved in real productivity and the country was only a "semi tax haven", locations such as Bermuda were found to have returns that bore little relation to productivity on the island.

Sullivan described the movement of profits to tax havens as "a seismic shift" in international taxation. He told The Irish Times it was clear that U.S. corporations were locking large amounts of profits in Ireland but it was difficult to assess how much of this money was a result of genuine economic activity in the country, and how much was placed there to avoid U.S. tax rates. "I haven't attached dollar figures to it because no one knows the normal rate of return. It's an elusive number," he said.

The report has already caused a considerable stir in Washington. A columnist for the Washington Times, Bruce Bartlett, said that U.S. tax laws needed to be rewritten to stop American companies from receiving tax credit for profits earned and held abroad.

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