herald

Thursday 14 December 2017

Wake up and smell the coffee on tax or pay consequences

employers' body IBEC hosted a closed-doors meeting on Irish tax policy last week which was attended by over 60 foreign-owned companies.

There is little doubt that our 12.5pc corporate tax rate has been extremely successful in persuading foreign-owned companies to invest here.

Last week IDA Ireland published its half-year results showing that it had secured a further 100 investment projects, which will lead to 8,000 extra jobs, in the first six months of 2014.

WORKINg

There are now over 161,000 people working in IDA-supported companies.

Unfortunately, you can get too much of a good thing.

Our success in using our low corporate tax rate to attract overseas companies to invest in Ireland has inevitably created jealousy among some other countries.

In the immediate aftermath of the 2010 EU/IMF bailout, France and Germany pushed hard for an increase in our corporate tax rate.

While Taoiseach Enda Kenny and Finance Minister Michael Noonan successfully fought off those attempts - the issue hasn't gone away, far from it.

Exchequers throughout the developed world are under pressure.

One of the biggest single reasons for this has been the way in which large companies have used low-tax and no-tax jurisdictions to shelter their profits from the taxman.

As a result, corporate tax receipts have fallen sharply as a proportion of the total tax take in most advanced countries.

The use of tax havens by large companies has become such a pressing concern that the Paris-based OECD, basically the rich countries' club, has established a probe of corporate tax regimes around the world.

The OECD is due to issue its preliminary recommendations in September.

This is just one of many straws in the wind.

Last May, the US Senate's Investigations Sub-Committee hauled Apple over the coals.

Testimony heard by the sub-committee revealed that Apple had used Irish-registered companies to pay an effective tax rate of just 2pc on $74bn (€54.4bn) of profits.

The sub-committee also alleged that Apple had negotiated a "sweetheart" tax deal with the Irish authorities - an allegation that has been strongly denied by both the Irish Government and IDA Ireland.

Whatever the rights and wrongs of the matter, the EU Commission announced last month that it was going to investigate Apple's Irish tax affairs.

The longer this affair drags on, the more difficult it becomes to resist the conclusion that the Irish Government and IDA Ireland are in denial on the company tax issue.

They seem to think that, if they ignore the issue, it will somehow go away. Time to wake up and smell the coffee, lads!

With other countries lowering their corporate tax rates - the UK company tax rate will drop to just 20pc next year - Ireland's 12.5pc rate is no longer massively out of line by international standards.

PROBLEM

The real problem is not the tax rate levied on profits made in Ireland, but the way in which this country has been used to avoid tax on profits made elsewhere.

That has got to change and soon.

If we don't move quickly to deal with this issue then a far less advantageous "solution" will be imposed on us sooner rather than later.

And that would inevitably be a whole lot worse.

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