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Ireland's political and cultural magazine
uniform acceptance among
advisers and policy-makers that Ireland’s low cor-
porate tax (CT) rates have been a major stimulus
to industrial investment since the s and a
cornerstone of the Celtic Tiger. US multina-
tionals located in Ireland and close on ,
Irish people are employed in Ireland by these
firms. However, this corporate fiscal landscape
may be about to change as there are rumblings
that President Obama and his new régime are not
best pleased with the existing tax regime. Given
that Obama has adopted a hugely ambitious public-
spending programme, he clearly needs to generate
as much tax revenue as possible. Robert Shaplo
(an adviser to Obama ) in particular has recently
commented on Ireland’s over reliance on foreign
investment. While the US cannot compel Ireland
to increase its corporate tax rate, the US govern-
ment could in practice - by closing of tax deferral
loopholes - make the .% corporate tax rate
null and void.
Hot on the heels of the US scrutiny, there
have been discussions in the media over the past
few weeks that the new rules introduced by the
European Commission mean that the Commission
will exercise an oversight over the national budget
of member states in the future. This oversight could
conceivably be the death of Ireland’s .% rate,
as the Commission would seek to level the playing
field. The Irish policy-maker faced with possible
attack on two fronts could be forgiven for alluding
to Claudius in Hamlet: “When sorrows come they
come not in single spies but in battalions”.
In light of the possible changes in American
tax law and changes to the EU Commission rules,
it is apposite to consider if the CT rate is too low.
Such an examination is necessary as the recent
Commission on Taxation report were exempted
by the terms of reference from even considering
the CT rate.
A quick comparison with other countries
would suggest that the rate is too low. The UK rate
is %, the German rate is % and the US rate
is .%.
On the face of it, .% is too low; it is an
artificial state aid to the corporate sector. It strikes
at the equality of the tax system, particularly since
personal tax-payers are now paying effective tax
rates of up to %.
We currently have in effect a third-world corpo-
rate-tax level. The idea was (or should have been)
to entice Foreign Direct Investment (FDI) with tax
breaks and then gradually raise corporation tax
so that they would pull their weight. Essentially
what we have got is a form of American imperial-
ism. They essentially take our resources, our labour,
our land and infrastructure and send it back to their
own country. Granted these companies give a small
fraction back in the form of wages and .%
profit. These multinational companies (MNCs),
as recent job losses in particular at Pfizer and Dell
have shown, are completely footloose: ready to
leave as soon as we become expendable.
The low-company-tax régime can be seen as
part of a conservative low-public-service ideology
- a “race to the bottom” by nation states to attract
FDI at any cost. The result is we have an extraordi-
narily low ratio of tax to GDP compared with other
EU countries. Many MNCs could afford to pay a
higher rate without much effort and are located
here for reasons which are much more complex
than our attractive CT rates. The few that would
pullout because of the rate rise would pull out
anyway.
The IDA and Forfás have to say a low CT rate
is essential. It is part of the raft of incentives for
location in Ireland but if the low nominal rate is
the overriding reason for locating in Ireland we
are in trouble.
In my experience with Finance Directors of
MNCs, there have been varied responses when
I have broached the question of the low tax-rate.
Many say they are judged by their parent compa-
nies on their pre-tax not post-tax profits anyway;
others say that their MNC tax-planning is so com-
plex that they do not require a low rate in Ireland.
Ireland in needs to invest in public serv-
ices particularly in health and education to build
a healthy indigenous knowledge-based economy
in line with the Scandinavian model. The raising
of the CT rate to an – per cent rate would
have little impact on employment; it would still
be low in comparison with other EU states. A one-
off change in CT is needed to redress the current
fiscal gap. The present fiscal deficit is alarming.
Approximately € billion of the Tax take
was property-related in terms of VAT, Capital Gains
Tax and stamp duties. Revenue from these taxes is
unlikely to pick up soon.
This fiscal gap highlights the need for a clear
need for a more sustainable source of Revenue for
Government rather than increased Governmental
borrowing.
Raising the CT rate would also end the resent-
ment from other European states, particularly
Germany and the UK, at our low rate.
The choices are – do we stick with the .%
race-to-the-bottom rate or have we national confi-
dence that we are sufficiently vibrant, young, edu-
cated and attuned to the needs of foreign companies
to to raise the CT rate to %. The result would
be a more broadly-based and fairer tax system and
increased tax revenue for public services.
Mark Lonergan is a Chartered Accountant working with MNCs
“12.5% is too low; it
is an artificial state
aid to the corporate
sector. It strikes at
the equality of the
tax system”
Increase Corporation Tax
Multinationals mostly assess their operations
on their pre-tax profits anyway
mark lonergan
Economics
multinationals prefer our character
to our financial flexibility
