Business Irish

Saturday 21 September 2019

David Chance: 'Haven or not, the State faces an inevitable day of reckoning on tax'

Finance Minister Paschal Donohoe. Photo: Gareth Chaney, Collins
Finance Minister Paschal Donohoe. Photo: Gareth Chaney, Collins

David Chance

Another week, another publication that groups this country in with tax havens which have received trillions of dollars in investments that largely reflect efforts by companies to cut their tax bills.

The timing is bad. The US and France are this week thrashing out a digital tax deal between them and in Brussels a new European Commission is being formed and briefed by officials.

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Here, the Government insists the bad old days of the "double Irish with a Dutch sandwich" are gone and that it is working with others on fairer global rules.

It is correct to say that a small economy like Ireland with few natural resources needs to compete with much larger economies so it can prosper.

To some extent, the paper published yesterday by two economists from the International Monetary Fund (IMF) and a third from Copenhagen University reflects past practice and it fails to capture how much real investment has been made here, including in very real jobs.

But the corporation tax issue isn't going away. The ground is shifting, potentially quite quickly.

In May, Finance Minister Paschal Donohoe - fresh from a meeting of Organisation for Economic Cooperation and Development in Paris - bowed to the inevitable on international tax rule changes with a speech accepting that Ireland will be affected by the changing tax dynamics.

That will help retain friends in Europe. Even so, Minister Donohoe remains opposed to what many observers say is the single most significant measure that would help some of the poorest countries in the world, a minimum effective tax rate.

That measure would enable poor nations to generate revenues of their own to fund the fight against HIV, for example.

Last week the Minister once again expressed his "deep scepticism" about the idea.

The effect of all this will be a more difficult task for Minister Donohoe or his successor if and when the flow of corporate profits through Ireland is staunched, and the resulting tax take dries up, as the Irish Fiscal Advisory Council and others have warned.

The Minister of the day may then be faced with the unenviable task of explaining that other taxes will have to make up the shortfall, potentially at the same time that it has to sell a programme of "green taxes" to the population as part of the fight against climate change.

Irish Independent

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