by Frank Schnittger
Fri Mar 25th, 2011 at 05:52:33 AM EST
President Sarkozy has been leading the posse trying to rein in Ireland's 12.5% corporate tax rate, and, together with Chancellor Merkel, has made any reduction in the interest rate charged on Ireland's ECB loans conditional on an increase on Ireland's corporate tax rate. However a PricewaterhouseCoopers (PwC) study for the World Bank reported in the Frankfurter Allgemeine Zeitung and cited by the Irish Times paints a different picture:
Ireland's corporate tax rate said to be 'average'
President Nicolas Sarkozy of France had no reason to be critical of Ireland, the FAZ said, pointing out that companies pay just 8.20 in tax for every 100 invested in France thanks to generous write-off possibilities on its tax base. This is despite an official corporate tax rate of up to 33 per cent and compares to 11.90 for Ireland. Germany demands 22.90.
Basically the Irish headline rate of 12.5% is very close to the effective rate of 11.9% as there are very few write offs possible from that rate. France, on the other hand, has an extensive system of write offs and allowances (said to chiefly favour larger Companies) with the result that many large Companies pay very little tax at all and the average effective rate of 8.2% is way below both the Irish rate and the French Headline rate of 33%. Meanwhile the British Chancellor of the Exchequer is reducing the British headline rate of corporate taxation from 28 to 23% over the next 3 years in today's budget.
frontpaged - Nomad
I'm not saying that low corporate taxation is a good thing and would support pan-European attempts to impose higher rates of corporate taxes and a Tobin Tax on financial transactions. I also support EU Commission attempts to develop a common consolidated corporate tax base to prevent corporate tax avoidance schemes designed to transfer taxable revenues from high tax to low tax regimes such as the Double Irish and Dutch Sandwich
arrangement which utilises loopholes in Irish, US, Bermuda and Dutch tax laws to reduce overall corporate tax liabilities. Such schemes typically require loopholes in a number of different tax jurisdictions and cannot be closed off by the Irish tax authorities alone.
But if there is to be a debate on corporate tax systems, let it be conducted on a rational basis and not as an opportunity to take advantage of Ireland's current difficulties and an attempt to bully Ireland into submission to the larger EU powers:
Our rate of corporate tax 'a fetish' for some
SOME COUNTRIES had developed a deep antipathy towards our corporation tax policies, Fianna Fáil leader Micheál Martin told the Dáil last night. "Quite frankly it has become almost a fetish for the representatives of some countries to get excited about them.''
He said as a minister he had debates with colleagues from other countries about the issue, and the House would know Brian Cowen had a "colourful and passionate'' disagreement with French president Nicolas Sarkozy at his last EU council meeting.
"What is amazing about this is that not one shred of evidence has been produced to show that our corporation tax is anything other than a minuscule part of broader European economic performance.
The reality is that Ireland has marketed its low headline corporate tax rate very effectively to attract (mostly US) Global corporates to locate substantial operations in Ireland rather than in other corporate tax jurisdictions in Europe or world wide. Whether that is the only or the best way to develop the Irish economy is, of course, very much open to question, but it is generally regarded as having been an essential ingredient of the success of the Celtic Tiger. At the moment, the success of this multinational sector is the one thing keeping the Irish economy (marginally) afloat.
What worked well in the past isn't necessarily going to work in the future, and there is no doubt Ireland's economic recovery needs to be put on a broader footing. The one thing Sarkozy and Merkel are NOT offering Ireland, however, is any alternative strategy for economic recovery. So long as an ever diminishing austerity spiral into economic melt-down is the only alternative option being offered to Ireland, they can expect the Irish Government to fight corporate tax reform all the way.
The bottom line is that without some sort of tax incentive, there is little reason why any major global corporation would locate in Ireland. Major corporations gravitate to major markets. Ireland's supposed educational advantage is another bit of marketing fluff. The reality is that Irish education is woefully underfunded compared to its European peers and the advantage of being English speaking is being eroded every year that English becomes the more universal lingua franca.
Without a coherent regional, industrial, or fiscal policy, the EU is simply forcing peripheral countries to compete on the basis of taxation and/or lower wage rates. Having been a beneficiary of the reunification of Germany, Merkel has to decide whether she really wants to be the divider of the EU.