Thursday 14 December 2017

Dan White: EU big boys make our tax rate irrelevant

ONE doesn't have to be much of a conspiracy theorist to be seriously worried by last week's twin assaults on US companies Starbucks and Amazon. Will Europe's larger countries squeeze the multinationals, rendering our 12.5 per cent tax rate irrelevant?

On Monday the House of Commons Public Accounts Committee hauled senior Starbucks executives over the coals. MPs were told that, since first opening for business in the UK in 1998, Starbucks has paid a total of just £8.6m in taxes while its total British sales over the past 14 years were £3.1bn.

Then on Wednesday the French taxman slapped a $250m tax demand on online retailer Amazon.

If it had been either Starbucks or Amazon getting a hard time then one might have been inclined to write it off as nothing more than an isolated incident of no major concern to this country but two US multinationals getting the thumbscrew treatment on tax from major European countries in just one week is beginning to look suspiciously like a trend.

When the ECB bounced this country into a bailout two years ago there were fears that we would be forced to give up our low corporate tax rate in return for financial assistance. The Irish Government waged a fierce and apparently successful struggle to protect the 12.5 per cent rate despite our financial woes.

Unfortunately it appears that there is more than one way, many more ways, of skinning a cat. Last April the European Parliament voted in favour of having a "common consolidated corporate tax base".

If the CCCTB ever became law companies operating within the EU would submit a single European tax return with their tax payments being allocated to individual member countries on the basis of the size of their business in each of those countries. This means that the CCCTB would be very, very bad news for Ireland if it ever came to pass.

But will it? Given the events of the past week the CCCTB could very quickly be overtaken by events as Europe's big boys take the law into their own hands. What if Britain, France and Germany crack down on the multinationals' favourite tax-avoidance techniques; Starbucks paying royalties to an overseas sister-company, Amazon exploiting Luxembourg's low VAT rate for e-books and Google's use of the 'Dutch sandwich' and the 'double Irish' to reduce its non-US tax bill to just 2.4 per cent?

Co-ordinated crackdowns on multinational tax avoidance by the larger European countries could very quickly render our 12.5 per cent tax rate irrelevant. If they can find ways of taxing these companies on the basis of the volume of transactions with people and businesses in their own countries, even if those transactions originate in Ireland, then it doesn't matter what our corporate tax rate is.

Bust-up points the way to better deal on bank debt

THE clash between IMF boss Christine Lagarde and Jean-Claude Juncker, the head of the eurozone group of finance ministers, on Greece may point the path to a better-than-expected deal on Irish bank-related debt.

Last week, we were treated to the unprecedented sight of a public disagreement between Ms Lagarde and Mr Juncker over when Greece should meet its target of reducing its public debt to 120 per cent of GDP. While Mr Juncker wants to extend the deadline to 2022, Ms Lagarde is apparently determined to stick to the original deadline of 2020.

As is so often the case, this dispute isn't really about what it's supposed to be about. In picking a fight with the hapless Mr Juncker, Ms Lagarde is sending a message to Germany and the ECB.

Last March, Greece's private-sector creditors were strong-armed into accepting a €107m write-down on the money they were owed, a 'haircut' of more than 70 per cent. The main reason the haircut was so severe was that the official creditors, the ECB, IMF and EFSF, refused to accept any write-down on their loans to Greece.

This can't continue. With the private-sector creditors having already been squeezed dry, official creditors will now have to take their share of the pain.

And what has this got to do with Ireland? Quite a lot. Once the principle of official creditor write-downs has been conceded, it can hardly be confined to Greece. This opens the door to a much better deal on our €63bn of bank debt.

Glanbia does the splits

LAST week's vote at Glanbia to split its Irish dairy processing business from its nutritionals arm gets the group's restructuring plans on track after the failure of a similar move in 2010.

Glanbia's Irish dairy processing operations will be spun off to a farmer-owned co-op, while the farmer shareholding in Glanbia PLC will fall.

However, the Glanbia Co-op shareholders must still vote in favour of the deal by a 75 per cent majority. In 2010, despite 73 per cent voting in favour, a similar restructuring fell through.

If Glanbia boss John Moloney succeeds this time around, how long before Kerry counterpart Stan McCarthy follows suit?

Sunday Indo Business

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