Ireland out on a limb over corporation tax

A deal on international corporation tax reached last week by the Organization for Economic Co-operation and Development by 130 countries may once and for all settle ongoing disputes over perceived favourable treatment for certain foreign companies. As Ken Murray reports from Dublin however, Ireland may find itself out on a limb as it attempts to hold on to its own tax rate, one that has given it a beneficial edge over other EU states in recent decades when it comes to job creation.

Since 2003, major foreign direct investors in Ireland have functioned successfully knowing that at the end of the financial year their respective corporation tax hit would only be 12.5% of income and that’s before crafty accounting and local special exemptions are added in to the mix!

The 12.5% rate has attracted some of the biggest US giants in international trade in to Ireland including the likes of Microsoft, Apple, Google, Facebook, Tik-Tok, e-Bay, Twitter, Pay-Pal, Intel as well as mega pharmaceutical players such as Pfizer, Wyeth and Eli Lilly etc.

Throw in the fact that the Country has a highly educated work force, the standard of living is good, visiting CEOs get a special income tax rate and Ireland [pop: five million] is now the largest English-speaking nation in the euro currency zone, the attraction of setting up a European HQ in the Emerald Isle has been most enticing.

The stock value of FDI [Foreign Direct Investors] in Ireland recently surpassed €1.03 trillion equating to 288 per cent of Irish GDP according to new figures from the domestic Central Statistics Office making the Country the most attractive location per capita in Europe for investment from beyond its shores.

In the encouraging words of the US-Irish Chamber of Commerce website: “Ireland is the gateway to Europe.”

With an FDI employment figure circa 250,000, it’s not surprising then that Ireland desperately wants to retain a highly lucrative investment incentive policy.

An agreement reached last week by the Paris-based OECD amongst 130 countries to impose a global standard corporation tax rate of 15% caused a few sleepless nights in the Department of Finance in Dublin with some senior staff fearing that the great successful Irish package to lure in big corporations from California’s Silicon Valley and beyond may be about to slow down or worse, come to an end.

According to Mathias Cormann, OECD Secretary General: “After years of intense work and negotiations, this historic package will ensure that large multi-national companies pay their fair share of tax everywhere.”

What was notable from the OECD Agreement aimed at creating an international level playing pitch was that of the nine international States opting not to sign up, were tax havens such as St. Vincent’s and the Grenadines, Barbados, Estonia, Hungary - the EU's least favourite member at present - and Ireland.

Speaking to Newstalk Radio in Dublin, Irish Finance Minister Pascal Donoghue said: “I think it’s important to assess what’s in our national interest and be confident and clear about making the case for what we believe is the best for Ireland and acknowledging the duties we have to the rest of the world with regard to how we manage corporate tax.”

Minister Donoghue, who is also President of Eurogroup which oversees the performance of the Euro currency in the respective participating countries, added somewhat vaguely: “I want to engage in this process in this negotiation but this is a matter of huge sensitivity to Ireland and there wasn’t enough clarity and recognition of the key issues for us in the text that was presented to me.”

It’s believed that a corporate tax rate move in Ireland from 12.5% to 15% on companies with turnover exceeding €750 million annually could cost the domestic economy close on €2 billion every year, a significant sum in an Irish context.

Economics professor Lucie Gadenne of the University of Warwick in England was quoted on RTE Radio 1 in Dublin as saying that with tax havens such as the Cayman Islands also signing up to the proposals, Ireland knows "the writing is on the wall" suggesting the Irish government will have to re-jig its annual budget figures in a more creative way to make up for expected lost revenues should the 15% rate be applied globally.

Irish fears over loss of revenues may however be overstated.

Commenting on the possible implications of the OECD Agreement for the economy in Ireland, respected Irish economics Professor John FitzGerald told Agence France-Presse: "I can see no reason not to adopt it if the US implements it.

"No firm could do better by leaving Ireland, so if 15% is everywhere you might as well be in Ireland and pay.

"If the US implements the rules, Ireland could end up with more [annual] revenue," he said.

The matter is expected to be finalized by the end of next October with 15% corporate tax rates scheduled to come in to existence from 2023 onwards which means the clock is ticking for the Irish Government if it hopes to retain its own successful rate.

The bulk of FDI in Ireland originates from the USA.

With President Joe Biden not shy in telling the world about his Irish roots, it’s believed government officials in Dublin are likely to spend a lot of time in the coming months over and back to Washington DC, applying plenty of sentimental persuasive charm in an attempt to secure deals that not only benefit American corporations looking for a European base but ones that continue to make Ireland as attractive in the future as it has been in the past.

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