Let’s talk about tax.

On Friday, both the Financial Times and the New York Times carried banner pieces criticising how Ireland is being used and, more to the point, is allowing itself to be used as part of a large tax avoidance scheme. Opinion is shifting against Ireland’s corporate tax system. And we are talking about the Financial Times and the New York Times – hardly the Worker’s Hammer or Militant.

Added to this, we have reports that the Irish corporate tax system might be a sticking point in the on-going German coalition talks as the left-leaning Social Democrats is demanding tax harmonisation in return for access to future EU bank bailout funds. Right across the political spectrum – left to right – momentum is moving against the way in which Ireland taxes its foreign corporations.

Not that long ago, at the G20 in Enniskillen, the world’s head honchos said that they would act together to level the playing field for corporation tax to prevent companies abusing tax shelters.

Ireland’s response then was to refute any allegations of wrongdoing but, if anything, the issue has become hotter.

Ireland has a choice: either we stick our head in the sand and pretend that the problem will go away or, as one of the countries with by far the most to lose from a change in the way corporation taxes are levied internationally, we can face up to the changed world.

It is quite clear that the political momentum – whether it is coming from the US, Germany, France or Britain – aims to squeeze countries like Ireland.

Although many in the government seem too nervous even to mention the tax system, this development and the subsequent ventilation of the issues around our industrial model might be a very healthy development for the entire Irish economy.

Let’s identify three issues. The first is quite straightforward and it centres on whether Ireland can portray itself as a normal country that is legitimately using its tax system to attract companies as opposed to some sort of rogue state” up to its neck in dodgy tax dealing which may well be just about legal, but which stinks from the perspective of governments whose tax base is being plundered by multinational tax shopping in every two-bit tax haven.

For example, the snooty tone of the New York Times’ article on Friday, which focused on how big American corporations are taking over smaller firms in lower tax jurisdictions to avail of lower tax, was pretty unambiguous. It cited the recent takeover of Elan – once the 20th-largest drug company in the world – by Perrigo (a US pharma company) as being driven in part by Perrigo’s desire to re-incorporate in Ireland, thereby saving $170 million in tax a year.

The second issue is more philosophical but, nonetheless, absolutely essential. Last week, I heard the serial entrepreneur John Teeling musing as to whether, by favouring the multinational sector so much, the Irish government unintentionally penalises local businesses.

This might seem to be an unusual angle, but consider the Irish firm – a start-up paying the full 12 per cent tax here – looking for talent, but which faces the prospect of competing with a huge multinational that pays effectively 2 per cent tax on revenues moving through Ireland. Which company has the advantage?

Over time, the explicit favouring of the multinational could be having a detrimental impact on Irish businesses. The reason this is important is that if your entire industrial base is anchored by a bit of tax jiggery-pokery, the country could be very exposed to changed international political sentiment.

And, if local business has been weakened as an unintended consequence of the corporation tax policy, then it will not be able to compete against or replace the multinationals if the multinationals up sticks.

The issue is not that multinationals haven’t been wonderfully beneficial to the local economy, but that there may be unintended consequences for local business.

The third issue is that, rather than fearing the coming change, Ireland might look at it as a revenue opportunity. Up to now, the attitude in most Irish policy circles appears to be that any change coming from the G20 or Europe would be an unmitigated disaster for Ireland, prompting talk of using the Irish veto at the Council of Ministers if our tax regime was to be changed by the EU.

What if we looked at it another way, and explored the view that standardising tax rates mightn’t lead to capital flight and could actually raise the Irish tax take from multinationals, benefiting the exchequer?

As things stand, the deal that multinationals get in Ireland is phenomenal.

A brilliant article in the regularly wonderful financial website, finfacts.ie, claims that profits per employee at US-owned companies in Ireland were at Euro 970,000, while the corporate tax paid in Ireland was just under Euro 26,000.

This is a deal like no other for the multinationals.

According to the US Bureau of Economic Analysis, US multinationals in Ireland reported net income of Euro 95.6 billion. These firms employ 98,500 people in Ireland, which gives profits per employee of a whopping Euro 970,000. In contrast, according to the IDA, tax paid per employee of multinationals to the Irish exchequer was Euro 19,000 or Euro 25,840 at today’s exchange rate.

According to finfacts.ie, the America data reveals that ”taxes other than income and payroll taxes” payable in Ireland in 2010 amounted to Euro 2.4 billion, giving an effective rate of tax of 2.5 per cent – far below headline rate of 12.5 per cent.

If these companies were to pay tax at the very low – by international standards – of 12.5 per cent, the exchequer would net Euro 12 billion in corporation tax per year. Euro 12 billion!

Of course, the companies would try to avoid as much tax as they can, and the revenues and incomes reported in Ireland would probably change. That always happens when you tinker with taxes because people and companies, typically, will never pay a cent more than they have to.

That said, when you stand back and take a look, it may actually benefit Ireland to begin the process of discussing openly how the country is used by multinationals to avoid taxes. Maybe the conclusion of these discussions and debates will be that we must retain the present system at all costs. This will put us on a collision course with the EU, but maybe the state will calculate that this is a battle worth fighting.

Bring on the debate. The rest of the world is talking about Ireland and its tax system. Surely we should be discussing it too?

Subscribe to receive my news and articles direct to your inbox