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?
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This article is typical McWilliams. Super recovery from last weeks dreadful
Offering!
Excellent observations which can’t be faulted.
Hopefully someone with clout somewhere will take notice.
Michael.
Predictable social changes coming down the pipe – Economists and the growth fetish! The 50s were a time of prosperity in many parts of the world and as far as down under in Australia. Mass production of new techology like the refrigerator, electric stove, and all kinds of other homeappliances like hoovers, washing maschines etc, affordable products for the masses. Energy consumption was of no concern really. Not until the 80s/90s when the use of more energy efficient appliances was desired in Australian homes. Environmentalism introduced better technology, thermo plastics, noise free and energy efficient dish washers, less energy consumption… Read more »
Perhaps have a look at this TED talk by Jeremy Rifkin, and well, the format may look somewhat familiar to you ;)
http://www.ted.com/talks/jeremy_rifkin_on_the_empathic_civilization.html
The corporate tax rate discussion is silly. Large multinationals are generally unaffected by the corporate tax rate. Income earned on the back of a patent is taxed at a 0% tax rate.
Raising the corporate tax rate won’t affect multi-nationals. It will only affect domestic companies in Ireland.
Until someone starts seriously discussing the tax rate on income from patents this entire conversation is completely bogus.
I think it’s shameful that Mr. McWilliams is participating in this sham.
Good article…
Welcome back Mr Mcwilliams.
Bottom line…will Ireland lose it’s low Corporation tax..?
The fundamental problem in Ireland is that the country now has a ‘business model’ based on housing and ministering to the professional services and admin needs of multinational corporations. This has been allowed to develop greatly during the last 15 years or so as it enabled huge growth in employment at the Irish offices of global accounting, tax law, legal and consulting firms with associated payroll tax flows. It also led to large amounts of commercial property development. The problem is the ‘crowding-out’ effect this has had on indigenous manufacturing and engineering firms who lacked the scale and leverage to… Read more »
Excellent article. Bring on the debate. And yes, the indigenous business does loose out more and more to these unfavourable tax arrangements and even more so where these multinationals do less and less to leverage local businesses for services when they use their own global deals. I want to debate to air the tax treatments in Germany and France so we can see the full headline tax rates and the other localised kickbacks. Many mumtinationals are effectively subsidised (negative rates). Finally, Let’s start to really understand that the Dozens of Markets of Millions of customers each is now steadily morphing… Read more »
Corporation tax is tax on profit made. This will live an ephemeral existance if imposed on multinationals. They will just move intellectual Property (or other tangables) to a company in e.g. Panama and profit will coalesce there. They will just use Ireland as a convienient staing post for invoiced money. As long as “Dutch Sandwiches” and “Double Irish” schemes are available then there is not too much can be done about it. Ironically the only law system capable of tackeling this is the Dutch one (A principle-based law system) and they are playing the game as much as, if not… Read more »
To be realistic, our options aren’t great. If the MNCs were to go, what would happen to our GDP ? We’re now caught in a trap and there’s no easy way out. With profits per employee of almost 1 million euros – that’s approx 500 euros per hour – it’s a printing machine and indigenous companies are put at a major disadvantage when it comes to competing for able employees. With those profit margins, they can pay way over the norm to keep everybody happy – “hush money” is what it’s called. The long term consequences will not be pretty… Read more »
Nice article David.
“The issue is not that multinationals haven’t been wonderfully beneficial to the local economy”
Indeed, but FDI is economic heroin, in my view. So yeah, very interested to see this debate start to happen.
€970,000 per employee – that’s a lot of surplus value.
Indicative of the utter greed and exploitation of the worker by corporations.
Marx is turning in his grave – bring on the revolution.
The figure of €970,000 profit per employee IS outrageous though, especially when you consider how much of it goes into the salaries and pension plans of fat cats who don’t deserve it – and otherwise into raping and pillaging the developing world and the environment.
They consider it normal to have a margin of 1,000% on a cutting edge technology in its early phase.
From Indo, 11-Oct-2013 Google enjoy a very tasty “Dutch Sandwich” paying €8.6bn in royalties to a Dutch subsidiary last year, then shifted to Bermuda, a tax rate of 5pc not 12.5pc, paying just €17m on revenue of €15.5bn, recording a pre-tax profit of just €137m here for 2012.
The highly controversial practice has attracted criticism from US politicians.
Bermuda again. Way ahead of the tax curve, what?
This once in a century move to ‘patch up’ holes in International Tax rules unveiled by George Osborne and his French and German counterparts at the G20. Amazon are told the game is up! Osborne and Moscovici were singing in tandem. http://www.theguardian.com/business/2013/jul/19/oecd-tax-reform-proposals-amazon Osborne: “People and companies have to pay the taxes that are due, it’s the only way to operate in a fair and competitive society … Our message is clear: everyone must pay their fair share of tax.” Amazon’s £4.2 billion sales in the UK derived from 8 warehouse facilities are funnelled through Luxembourg. He proposes this on the… Read more »
MI5 , subterfuge , GCHQ , secrtets , NSA , espionage , MI6 , …you get the picture
5 mins long …full length available and worth a watch
http://www.youtube.com/watch?v=zbvCJK5eOME
too many secrets
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The main concern people have is that Multi Nats will up sticks if we appear to increase the corporate tax rate. This clearly warrants a sensitivity analysis by the government to see where the tipping point is for multi nats per industry. I think you’ll find that increasing the corporate tax rate will not send existing ones off shore. The capital they have invested and the complexity in getting regulatory approval for pharma/biotech companies is substantial. Most multi nats generally spread production plants across different contries/regions anyway to migigate risk and they need a presense in Europe. So why not… Read more »
Ireland’s taxation system is designed to prop up the residential real estate market. In fact, it always was.
There is also a massively oversized state system in Ireland. And unlike Denmark, Ireland’s state system is a performance disaster. Ireland’s institutional state makes power grabs – because it can make the power grabs, not because it is in any way competent.
In fact, Ireland is the China of the West, in it’s approach to policy. A State system that loves to be in control, and increasingly Marxist, and a pro-investment regime that is red blooded capitalistic.
The Irish institutional state is schitzo.
Let me assure you Deco the Irish institutional State is far from Schizophrenic. It is parasitic and psychopathic and is geared to feed on the citizens of this State at any cost. It is the ultimate cartel and it can and does play the long game because it has the blank chequebook of taxpayers as a key weapon. If you challenge it as a taxpayer trying to get services for a disabled child or as an employee trying to introduce transparency for the people you serve it can and will take you all the way to the Supreme Court. Because… Read more »
We are engineering this country to be skilled in taking on 20th Century style operations, given them a presence while supplying accountancy functions to channel the profits. So we supply grads with relevant skills (fodder), local taxes win PAYE and country never builds its own capability (unless you think a nation of administrators who are afraid to start a business is a capability). It has all the hallmarks of a housing bust. Ireland is ignoring its indigenous capability and the economic diversity it brings at its peril. We have an impoverished artisan culture and rely too much on stock solutions… Read more »
It might give some a warm fuzzy feeling to talk about taxes – have a look at this! Plans for Dictatorship Bloomberg pushes Obama to go for dictatorship : “President Barack Obama may soon face a choice between safeguarding democratic governance on the one hand and protecting financial stability on the other.” And again : “U.S. May Join Germany of 1933 in Pantheon of Defaults,” Bloomberg has the precedent of Hitler in mind. In that article printed on Monday, author John Glover claims that the U.S. would be the first major Western government since Hitler to default. They note that… Read more »
Bonbon do you do any thinking for yourself? Almost every time I click on the links you use for reference it takes me to the “Larouche Irish Brigade” home page. Just because it states something there doesn’t make it true. I was going to pose the question “how can it be stopped?” but your usual antic is to make a reference to GS and invite me to read some 400-800 page book. Please give me YOUR view in plain english without jargon and esoteric references.
Guten Abend Whatamess,
Mein Nachbar ist ein Außenseiter! :)
ICEMAN: Hey Maverick, You can be my wingman anytime.
MAVERICK: Bullshit.. you can be mine!!
http://www.youtube.com/watch?v=siwpn14IE7E
http://www.bbc.co.uk/news/business-24489844
4mins short
Can desalination plan revive fortunes of Jordan desert ??
“The Sahara is a limit, a boundary, but it is self imposed by Easter Island inward-looking belief systems.”
well said Bonbon
human conditioning of LIMITS only results in ‘creativity with boundaries’ that are not in actual fact , REAL
the “boundaries” are virtual
all in our boundary conditioned minds
It would seem that the majority of the comments made in response to what David pointed out in his article have completely missed the point. I’d like to draw your attention to what David stated about every multinational if they paid the full amount of 12.5% Corporation Tax on their profits then the State would accumulate 12 Billion Euro per annum from it. DO YOU ALL GET THE POINT NOW?????
What if there’s no debt ceiling deal?
in 90 seconds
http://www.bbc.co.uk/news/world-us-canada-24525915
So I get a tax relief for an extension on my house?
Then comes the demand to “revalue” said house for property tax purposes.
Sure its worth more now isnt it?
Be careful, they are sneaky fuckers.
@whatamess and DB4545.
I stated this before and I’ll now state it again; the sooner the Irish electorate stop voting for the same old same old the sooner things will start changing for the better in this god forsaken country!!! We’ve gone through 90 years of a complete and utter cock up do want another 90 years of ther same again??? For God’s sake cop yourselves on and start behaving like grown ups for a change or else nothing is going to change; EVER!!!
@Like
Well, we can either do one of two things and that’s change the system or else change the attitude!!! Enough said!!!
Start carrying your documents, or maybe a forearm number tattoo, that worked in the past didnt it?
The dole cheats will be weeded out “early” on “your” way to work at “checkpoints”
When I hear Joan, Labour minister for social protection, talking, I can hear the commands,as follows. Marsch! Im Gleichschritt! Nach rechts…Richt Euch! Now, …tap your heels three times. And think to yourself,……………………………
I REST MY CASE!!!!!
Now is NO time to REST !!!!??
Muhammad Ali said it best:”…Man,this is the wrong place to get tired!”
http://www.youtube.com/watch?v=9WhktJPT5xA
2 mins
keep motivated
keep focused
Pre election Enda:
“Paddy likes to know da shtory”
Speaking in boxing parlance, Vincent Browne went a sparring with Kenny today, pinned him few rounds on the ropes!
http://www.irishtimes.com/news/politics/vulnerable-and-poor-targeted-again-in-another-viciously-divisive-budget-1.1561783?page=1
What’s with all the animosity, why can’t they just get along?
Find some common ground, evoke their common humanity!
Ta sli nios fearr fir!
Very knowledgeable commentaries but not a lot of help to an individual.
Maybe take Jim Richards advise and do what the Chinese are doing. Buy the insurance on the dips and protect yourself.
http://tinyurl.com/pvs4mqs
We’ve have been described before as a Country full of Genius with absolutely no talent! We just need an outlet for the Genius to turn it into a talent!