Business The Budget

Saturday 20 September 2014

Noonan didn't really have a choice on tax-avoidance crackdown

Published 16/10/2013 | 04:00

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German Chancellor Angela Merkel and Taoiseach Enda Kenny

THE Government's announcement that it will tackle aggressive tax avoidance by foreign companies operating in Ireland may well be one of the most far-reaching decisions from the Budget.

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That decision, announced in a detailed document attached to the Budget, is aimed squarely at companies such as Apple which has used operations in Cork to pay taxes of just 2pc on profits of more than €40bn over the decades.

In truth, Finance Minister Michael Noonan had little choice. When the US Senate and Germany's second biggest political party started jumping up and down about the country's tax affairs, he had to sit up and listen.

When pro-business news organisations such as the 'Financial Times' and Reuters regularly exposed quirks in our tax system, he was in real trouble.

The confirmation earlier this week that Germany's Chancellor Angela Merkel is struggling to put together a coalition government thanks, in part, to our tax system probably forced Mr Noonan's hand.

But the writing has been on the wall for at least a year.

As he travels to Washington and Strasbourg this month for talks on how Ireland can best exit the bailout, Mr Noonan will be relieved to be able to point to the Government's newfound eagerness to clamp down on aggressive tax avoidance.

Back home, he can point to the success of this administration, and the last one, in holding on to the 12.5pc corporation tax.

The background to his climbdown on companies with "stateless" tax status is simple: foreign governments and their electorates have grown tired of a group of small countries that help wealthy individuals and companies to avoid taxes.

Switzerland and Austria were the first to bend the knee.

These countries, which have allowed dictators, criminals and businessmen to stash away cash for generations, were forced by the US to effectively repeal their secrecy laws after US officials began arresting Swiss bankers on trips to the New York.

After making a massive dent in Switzerland's centuries' old tradition of secret banking, the Americans, Germans and French have now taken aim at countries such as Ireland, the Netherlands and Luxembourg.

Last month, the Dutch blinked. Yesterday, Ireland did the same thing.

It is too early to know what happens now.

Mr Noonan is sensibly saying that Ireland will act together with the OECD to find a common position.

His officials are, presumably, looking at all sorts of measures to make the changes more palatable.

The handful of tax advisers in Dublin's swanky law firms who understand these things will also be looking at tweaks that might yet help their clients.

They have 15 months – the new rules to stop stateless companies are not due to come into effect until January 2015.

Mr Noonan was at pains to say that the changes only affect a "handful" of firms, but that is certainly an under-statement.

Even the Revenue Commissioners probably don't know exactly how many companies are guilty of what the Department of Finance tactfully calls "mismatches" between domestic rules of different countries.

There is no doubt that yesterday's decision could discourage some companies from keeping their operations here or setting up business.

That is bad for us but there are also advantages: Ireland needs to improve its reputation and help small indigenous companies which have been unable to compete on a level playing field with the multi-nationals.

On balance, Mr Noonan made the right decision.

But right or wrong, the realilty is that he no longer had a choice.

Irish Independent

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