Sunday 16 December 2018

Mody's warning should be heeded - we need to boost domestic business

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Gavin McLaughlin

Multinationals' investment in Ireland has helped transform this country from an insular backwater into one of the world's leading tech hubs.

Giving an 'Irish welcome' to foreign companies was an inspired move that has benefited generations of Irish people. But while we might have a positive definition of an Irish welcome, others take a less rosy view.

There's no doubt that over the years Ireland's tax regime has helped facilitate aggressive tax avoidance by some of the richest companies in the world.

Some entities paid a pittance to the Exchequer - less tax in a year than you or I would pay - due to clever accounting techniques.

This seems deeply wrong on a fundamental moral level, and there are a number of international efforts underway to address it. Campaigners want companies to pay tax to the countries where they carry out activity, not shift profits overseas to low-tax countries.

Ireland is on board with one effort, which is being led by the Organisation of Economic Co-operation and Development (OECD), but change is afoot at EU level too with plans to standardise how member states calculate corporate tax.

Ireland has been robustly opposed to this measure and has a power of veto over it.

But with Brexit, our position becomes much more difficult. The UK had opposed the EU plans too, and now Ireland is losing its biggest ally within the bloc.

That makes the potential consequences of angering other EU countries worse - and what's to stop them trying to pressure us into tax changes by applying pressure in areas where Ireland has no veto?

The new Varadkar-led government talks a good game when it comes to defending Irish interests.

Perhaps its most notable feature, in economic areas at least, has been the robust rhetoric when it comes to Brexit.

But it's easy to be robust when the UK negotiation is a shambles and you've got 26 other member states backing you up. Things become more difficult if you are in the minority.

That's why there's merit in Ashoka Mody's suggestion that we need to develop a new growth model.

Negative tax changes are just one of the factors that could spark a flight of multinationals from this country, wreaking havoc on our economy.

We are deeply reliant on these companies. Just under 40pc of our corporate tax is paid by the top 10, and foreign companies employ the best part of 250,000 people.

These companies get special treatment - under one particular programme called SARP, some employees of multinationals get favourable income tax treatment.

Perhaps its time our own businesses started getting some special treatment. A good place to start might be the capital gains tax regime, which sees a rate of 33pc charged on profits (above €1m) made from selling a business.

This is far less favourable than the UK regime, where it's easy for Irish people to go and start a business instead, and is repeatedly cited by top entrepreneurs as a disincentive to growing a business. We need to create more of the world-leading businesses that have already come out of this country - Ryanair, Kerry Group and the like.

That said, domestic business will probably never reach a point where it could fill the gap caused by a flight of multinationals. But it could help insulate us, and that's why Mr Mody's warning should be heeded.

Irish Independent

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