Budget takes eyes off the real battle on corporation tax
ALL eyes will be on Michael Noonan's third Budget today.
Interesting and all as the contents of Budget 2014 will be, it might not be a good idea to ignore what is happening elsewhere in Europe as we prepare to exit the bailout.
The EU and the larger European countries have long been hostile to the 12.5pc corporate tax rate that is this country's key weapon when seeking to attract multinationals. It has now become an issue in the negotiations on the formation of a new German government.
This matter has been bubbling away for a while. At the time of the November 2010 bailout and for almost a year afterwards, former French President Nicolas Sarkozy pulled every trick in the book in an effort to force us to increase our company tax rate.
While Enda Kenny and Michael Noonan successfully saw off those efforts, this country's cause was badly hurt by the revelations late last year and earlier this year that major multinationals including Google and Apple, both of which have major Irish operations, were using loopholes in Irish tax law to pay virtually no tax on tens of billions of dollars of profits.
The real damage done by these revelations was that not only were they exploiting the 12.5pc tax rate to minimise the tax they paid on their Irish profits, they were using a device known as the 'Double Irish'.
This allowed them to route billions of euro of profits made outside of Ireland through this country and deprive the countries where the profits were made of tax.
Suddenly, the Irish corporate tax rate was back at the top of the European agenda.
Now the German Social Democrats have hopped on the bandwagon. Despite having been hammered in that country's general election last month, Chancellor Angela Merkel needs their votes if she is to have a parliamentary majority.
As part of the price of their support, the Social Democrats are demanding that Germany only agree to the retrospective recapitalisation of the Irish banks by the ESM (the bailout fund) if we agree to give up the 12.5pc tax rate.
For good measure, the Social Democrats are also demanding we sign up to a pan-European financial transaction tax.
While it would be easy to accuse the Social Democrats of grandstanding, there is little doubt that their demands reflect a growing impatience throughout Europe at what are regarded as this country's predatory tax policies.
We need to recognise this and take precautions. While it is perfectly acceptable for us to tax profits actually made here at a low rate, allowing this country to be used to shelter profits made elsewhere definitely isn't.
Irish tax must be changed to ensure that only profits made here qualify for the 12.5pc rate.
If we don't, then sooner or later – and probably sooner – Europe will a find way of forcing us to give up the 12.5pc rate.
The multinationals employ more than 150,000 people in Ireland and pay an estimated €2.7bn in corporation tax every year. This figure doesn't include the PAYE, VAT and other taxes paid by their employees.
If there isn't an announcement in today's Budget restricting the 12.5pc tax rate to profits actually earned here, then there should be.
Because, while the dust may settle on the Budget in the coming days and weeks, this is one major issue that shows no signs of going away.