OECD report is not the last word on Ireland's FDI corporation tax regime
The global war on corporate tax avoidance doesn't look like being so gruesome after all. The OECD reckons that governments are losing out on at least €213bn per year from aggressive tax planning by multinationals.
A new book by a Berkeley University economics professor estimates that around $7.6 trillion is held in the three offshore tax havens of Luxembourg, Switzerland and the British Virgin Islands.
The notion that giant global businesses are not paying their fair share of tax has gathered pace in recent years and has led to a lot of anger.
The global clampdown on corporate tax avoidance took a small step forward this week with the publication of the Base Erosion and Profit Shifting (BEPS) report by the OECD. One would think its recommendations would be very bad news for Ireland which has global corporations putting billions of euro worth of business through Irish subsidiaries but managing to avoid paying tax anywhere on a lot of it.
The report was supposed to spell very bad news for Ireland's future ability to attract foreign direct investment. Yet, finance minister Michael Noonan seems pretty happy with it. Noonan seems so satisfied that his only fear is that the EU might try and go further than the OECD recommendations.
This doesn't quite sound like the bogeyman which will take our FDI legs from under us.
There are several reasons for this. Firstly, because of the negative publicity Ireland received over the likes of the "Double Irish" structure as well as corporate inversions, all aimed at minimising tax, Noonan has moved quickly to make changes.
He has presented Ireland as a willing fore-runner in the changes that are coming down the tracks. In next week's budget he is expected to announce legislation giving legal effect to Ireland's new knowledge box - a corporate structure arrangement that will see companies pay reduced tax on patent revenue.
It isn't as good a deal as we had but should remain a very attractive proposition for companies. It isn't clear what some of our EU partners will make of it.
Noonan has been able to boast that our new knowledge box legislation will be the first in the world to comply fully with the new OECD recommendations.
Another reason he is not spooked is that the more countries agree to changes the fewer options multi-nationals have in choosing alternative locations. So if new rules or guidelines apply to everyone, Ireland could still have a lot to offer, won't look out of kilter and can remain competitive.
Noonan is also buoyed up by this year's tax revenues. In fact he and the Department of Finance must be ecstatic with the Corporation Tax receipts that are coming in right now. In 2014 our net Corporation Tax take was €4.6bn, up marginally from €4.3bn in 2013. This was despite the fact that our GDP rose from €179bn to in 2013 to €188bn in 2014.
Noonan pencilled in targeted GDP growth of around 3.9pc for 2015 but forecast only a very modest increase in the Corporation Tax take. This suggests a certain cautiousness in Merrion Street that changes to the double Irish and other issues of uncertainty around the tax, might impact our flows of FDI and Corporation Tax take.
The figures for 2015 are extraordinary. The economy now looks likely to grow by over 6pc this year. For the first nine months of this year Noonan had pencilled in a corporation tax take of €2.735bn, just €27m more than 2014. But the take has been €3.94bn, or €1.23bn more than the target.
Companies paid €657m in corporation tax in the month of September alone, which was €327m more than what had been targeted.
It is interesting that in 2014 when GDP was €188bn, the State took in €4.6bn in corporation tax. GDP is expected to return to peak boom-time levels this year of just under €200bn. When GDP was that size in 2006, we took in €6.6bn in corporation tax.
So Noonan has several reasons to feel a little more relaxed about the future Corporation Tax regime and its impact on our FDI.
But this isn't over yet. One of the big changes announced in the BEPS is that countries would provide to the revenue authorities sensitive data on revenue, earnings, profit and employee numbers on a country by country basis.
It will see greater transparency rules, closure of loopholes and restrictions to the use of tax havens.
Reporting this material on a country by country basis could lead some multinationals to book more profits in Ireland which would see them pay more tax here. But equally, the entire new structure may undermine the advantages that bring some companies to Ireland in the first place.
Around 250 groups operating in Ireland are affected by the changes. For some, after making these disclosures and changes, Ireland will remain a compelling option - for others possibly not.
The US and the UK are proving a little slow about signing up to these new measures and actually bringing them into force could take many years. Michael Noonan is comfortable with the new measures but not with the idea that our EU partners might go further and press ahead with even stricter rules.
He can live with the OECD recommendations but not with what Germany or France might want to cook up.
The issue for Ireland is that we have become too dependent on FDI for decades. It has been brilliant for economic development but successive policy makers have been spoiled by having global leaders in the fields of IT, pharma and financial services located here.
We have not made enough progress in developing indigenous industry. We haven't even maximised the potential from having so many global multinationals here in the first place.
Irish banks didn't build sufficient relationships with them. Their potential role in helping to develop smaller indigenous companies alongside them has been under-utilised.
They have played a huge role in their local wider communities but haven't been as integrated into local economies as they could have been. We have not developed enough clusters made up of indigenous smaller firms and larger multinationals which could grow together.
So many large multinationals here have even hoovered up the best brains who might have thought about building a future multinational of their own.
Our FDI future remains uncertain. It looks healthier than we might have thought it would be about two years ago. But we have to keep plugging away on alternatives.