Monday 22 December 2014

Richard Curran: We may have some traits of a tax haven, but foreign multinationals tend to actually do things here

Published 06/06/2014 | 20:09

Enda Kenny on Facebook's headquarters in California

Taoiseach Enda Kenny was sounding bullish about Ireland’s Corporation Tax regime during a trip to San Francisco.

And why wouldn’t he. Kenny is addressing a particular audience and is saying the county remains very attractive in relation to Corporation Tax.

However, there are more than niggling doubts about the international process taking place which is expected to see a major tightening up of corporate tax structures.

The European Commission is circling and while it knows it can’t touch our 12.5pc Corporation Tax rate, it is considering whether to launch a full investigation into how some countries, including Ireland and the Netherlands, attract foreign investment.

It is no secret that the European Commission would like to see changes to the structure of certain taxes.

Ireland faced criticism by US lawmakers last year over the exploitation of a legal loophole by Apple that allowed it to seriously reduce the level of tax it pays. This was achieved by using a subsidiary in Ireland that was, legally, not tax resident anywhere in the world.

This particular loophole was closed down by Michael Noonan and the world didn’t end on the Irish Corporation Tax front. But the impact of the move over time really depends on how many companies availed of that structure or something similar.

No matter what happens, we are unlikely to see global corporations paying a lot more tax in Ireland. They may end up paying more elsewhere. If these options are no longer open to corporations, the question remains as to how that might affect whatever edge the tax structure here gives them.

If it is just part of a wider set of reasons for being in Ireland, then it won’t affect us too much. If it is a significant factor, they may consider locating new investment elsewhere or even moving.

Ireland has a big advantage in all of this. We may have some of the traits of a tax haven, but foreign multinationals tend to actually do things here or from here.

That creates more reasons to be here than just a complex international tax structure which saves them paying more tax somewhere else.

Having said that, it is hard to imagine that the exchequer’s Corporation Tax take will not be affected in some way, when all of these reviews are over.

There isn’t a lot of room for manoeuvre here. Last year the state took in €37.8bn in taxes and duties. The biggest slice came from income tax which was up slightly at €17.8bn. Corporation tax was the fourth biggest earner and brought in just under €5bn. This was down slightly on the previous year.

With Ireland’s interest repayments on national debt due to gobble up half of all the income tax collected, a fall in the tax take from businesses would be a big blow.

Ireland blinked first in this stand-off by closing down the tax loophole which had been used by Apple. It would be naïve to think this one change will be enough.

However, it has given Kenny confidence to say Ireland is in a strong position on this matter. I hope he is right. 

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