Tuesday 6 December 2016

Emmet Oliver: Europeans are missing the real corporation tax battle

Published 10/02/2011 | 05:00

As increasingly shrill and impetuous comments emerge from Europe about Ireland's 12.5pc corporation tax rate, one begins to wonder do the Europeans want the Irish economy to recover at all?

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In the first nine months of 2010, for example, Ireland's exports of services rose by 11pc compared with a year earlier. This year exports overall are expected to grow by 6pc at least. Such figures are underpinned by the 12.5pc rate.

With Irish domestic demand now on the floor, exports are having to do virtually all the heavy lifting for the Irish economy and talk of fundamentally altering the tax regime here -- albeit over a gradual period -- is anything but helpful.

The assault on the 12.5pc rate is coming mainly from France's Nicolas Sarkozy, but the Germans are aiding and abetting his efforts.

The implication often drawn from Sarkozy's comments is that in some way Ireland has a budget deficit because it is not collecting enough corporation tax revenue.

Of course, anyone who has looked at the corporation tax figures will know, corporation tax for Ireland is not about tax, but about employment.

The actual receipts from corporate tax itself are quite modest; it is the trickle down effect from the employment provided to Ireland that matters.

In that context there is little point in seeking to reduce future foreign direct investment (FDI) into Ireland (while placing a doubt over existing FDI) at a time when growth is anaemic and the debt burden outsized.

But this is apparently the public position of the French leader and also of shadowy European Commission officials who are pushing the idea of a Common Consolidated Corporate Tax Base (CCCTB) upon member states.

The total corporate tax rate in France would give any US multinational a nosebleed at an astonishingly high 34pc.

Comparison

This compares with China where the rate is 25pc and special deals can be done for certain industries that the Chinese government wants to encourage.

Singapore, for instance, is offering a rate of 17pc and a zero rate for certain start-up companies.

Instead of concentrating on making Europe the economic entity, competitive globally on corporation tax, the approach seems to be to lift the rates in lower taxed countries up to some kind of mean. It is a perplexing approach.

The European CCCTB supporters also seem to have a monopoly on wisdom.

Are the promoters of this idea actually talking to the giant multinationals who drive capital around the world and asking them what they think would work best?

Ernst & Young issued a report this week pointing out that far from ruining Ireland's FDI base, or bolstering France or Germanys, the main impact of CCCTB will simply be to drive up compliance costs by 13pc.

For Ireland the problem of resisting all this stuff is twofold.

One is the desperate lack of negotiating power Ireland has in a European context.

The incoming government appears to have only one refrain -- give us what we want or we may default.

The second problem is one of perception. Ireland has spent the last decade telling the outside world that corporation tax is only one of various attractions Ireland is able to offer multinationals.

Ministerial speeches always talked about a young able workforce, English speaking and a well-regarded education system.

Now it appears the emperor has no clothes. The corporate tax rate is THE reason FDI projects come here and without it, Ireland becomes a desert for multinational investment, now appears to be our chief line of argument. Unfortunately it may not convince many and probably comes too late.

Goodbody breaks free with bear's message

Legend has it that Irish stockbrokers give out more Buy recommendations for Irish stocks than any other market in Europe.

This apparent lack of independent thinking didn't matter much in a bull market, but when the financial crisis hit certain brokers still remained curiously uncritical, especially about Irish banking stocks.

One brokerage famously rated Anglo Irish a 'Buy' 24 hours before it was nationalised and all its shareholders were wiped out.

Now, after a wrenching economic adjustment lasting three years, stockbrokers are getting braver and even weaving a little scepticism into their published research.

Maybe it's because AIB no longer owns the firm, but Goodbody Stockbrokers seems to have transformed itself almost overnight into an ultra bear on the Irish economy, with the release of its hard hitting, but forceful, report this week on our debt position.

In it the firm's economist Dermot O'Leary makes the wonderfully unambiguous judgment about Ireland's current position: "We have come to the conclusion that Ireland cannot continue to inject further funds into the system.''

Can anyone imagine an Irish broker saying that two years ago? The conventional wisdom among brokers is that if you're an Irish broker, your job is to sell Irish stocks and the researcher's job is to sell good news about them.

Goodbody's shifting stance may not change that culture, but the now Fexco-owned company should consider the consolations.

There is ample evidence that private and institutional clients of stockbrokers are always prepared to pay just that little bit more for bearish research, even if they don't quite agree with it.

It's Cold War-style secrecy over the banks

The excessive secrecy surrounding Brian Lenihan's controversial banking policy continues unabated.

First we had the John Le Carre-style use of coded words for certain banks and then just before Christmas we had the sight of reporters being removed from courtrooms as the Government applied to use public money to prop up AIB.

Not content to go along with these reporting restrictions, the current Government now wants vital documents, which presumably explain some elements of their policy, to be kept secret.

On Tuesday, a senior Department of Finance official said documents which provide a rationale for auctioning off Irish Nationwide and Anglo's deposit books should not be disclosed in open court and should not be published or reported upon in any forum.

The department, as is their wont, cited commercial sensitivity for this request, which the courts acceded to.

Quite how anything can be "commercially sensitive'' about two nationalised entities with no listing on equity markets is something of a mystery.

The problem with this "commercial sensitivity'' justification is that nobody can judge the validity of it without actually seeing the documents.

But of course nobody can see the documents because... well, they are commercially sensitive.

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