Welcome to European Tribune. It's gone a bit quiet around here these days, but it's still going.
They further argue that other small European states like Luxembourg and Switzerland have even lower effective corporate tax rates and that lower taxes is the only way that smaller (and particularly more peripheral) economies have of competing against larger economies with much larger domestic markets and economies of scale. They further argue that if Ireland were to increase its corporate tax rates, many mobile businesses would leave - not to elsewhere in Europe - but to even lower tax countries in the far East and Caribbean. - resulting in a net loss of output and tax revenue for Europe as a whole.

I wonder how significant a factor the tax rate is to foreign companies investing in Ireland. I'd really love to see figures showing where these multinationals setting up Irish bases have come from. The line trotted out here is that they are primarily US firms, attracted also by the shared language, proximity, and Eurozone membership. Were this to be true, a modest rise should be palatable enough; at least to those with existing operations.

You're raising another issue - funding and devolution to local authorities. Rates are a significant income source for local authorities and one of the few things they can tinker with. Your suggestion couldn't really be called revenue-neutral  as the likely result would be cuts to local services as central funds get siphoned off into the banks. I can't corporate tax income being ring-fenced. That's not a argument against the abolition of rates though, just a cynical observation.

by ectoraige on Thu Feb 10th, 2011 at 07:59:20 PM EST
There are increasing numbers of countries with high educational levels, wide English language competency, lower wage rates, and increasingly unobstructed access to Eurozone markets, so all the other advantages that may have contributed to the Celtic Tiger are becoming less important.  In the meantime globalisation and reducing corporate tax rates elsewhere chip away at the one last advantage Ireland has in attracting mobile foreign direct investment.

So, yes, I do think the low tax rate is an important component of why major companies located here, although it may not be enough in the future.  I don't have a problem with major companies like Google, Microsoft, Oracle,or Wyeth locating here because they brought real investment, major numbers of jobs, and net increases in tax revenue.  I do think the Financial Services Centre was largely a tax avoidance scam and has rightly annoyed other Eurozone countries.

Guinness/aka Diageo is actually incorporated in Holland because various exemptions means the tax cost is even lower there.  Some countries just keep a lower profile when it comes to tax competition.

Index of Frank's Diaries

by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Thu Feb 10th, 2011 at 08:33:05 PM EST
[ Parent ]
S you argue that Ireland - one of the richest countries in the union - should get a special dispensation to a low corporation tax policy? Why?

And that is not a long term plan anyway: Slovakia already imitated you Ireland on the corporation tax rate.

And of course in most countries there are thinks like commercial rates. In Germany e. g. you would add the corporation tax, solidarity surcharge and local corporation tax together and get a tax rate of 29-31%.

So the argument that commercial rates are a special Irish burden on business is not that persuasive.

by IM on Sat Feb 12th, 2011 at 06:13:25 PM EST
[ Parent ]
S you argue that Ireland - one of the richest countries in the union - should get a special dispensation to a low corporation tax policy?

Firstly - there is no question of a "special dispensation".  Corporate taxation (and most other forms of national taxation) are outside the scope of any EU Treaties and so any attempt to force Ireland to change its rates is not a function of the EU, but of imperial dominance by more powerful nations seeking to impose their interests.

Secondly, my argument is that the manner in which commercial rates are applied in Ireland is inequitable, capricious, regressive and economically inefficient.  It is a matter for Ireland, and Ireland alone, to remedy this if it so chooses, and my suggestion is a revenue neutral rebalancing from struggling to profitable businesses.

Thirdly, you are correct in identify a trend for peripheral EU states to lower their rates - I suggest this is because that is the only way they can compete with the larger powers - and so in the absence of a fiscal transfer Union, this is a trend which will indeed continue.

Index of Frank's Diaries

by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Sun Feb 13th, 2011 at 08:08:54 AM EST
[ Parent ]
Spare me the nationalistic blather. You can't build a business model on luring in companies from all over the world with low corporation tax rates and then suddenly say that this a purely domestic matter. It isn't, it does influence the ability of other states to tax their corporations.

And if just discussing this violates the sovereignity of Ireland, then perhaps you should not complain about effective tax rates in the Netherlands.

It isn't a long term strategy anyway: Tomorrow Slovakia or Estonia or indeed the Netherlands will undercut Ireland and what then? Offer a -12,5% tax rate?  

by IM on Sun Feb 13th, 2011 at 05:48:49 PM EST
[ Parent ]
Spare me the nationalistic blather

If you want to be rude please take your conversation elsewhere.

Index of Frank's Diaries
by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Mon Feb 14th, 2011 at 05:46:10 AM EST
[ Parent ]
And can I just add that drive-by accusations of nationalism on a site like ET - and I'll be polite here - seem to have more to do with rhetorical point-scoring for the sake of it than anything else.
by ThatBritGuy (thatbritguy (at) googlemail.com) on Mon Feb 14th, 2011 at 05:52:42 AM EST
[ Parent ]
If you think Ireland is one of the richest countries in the union you need your sense of reality recalibrated. You could start by not accepting neoliberal propaganda about how brilliantly reform was working in Ireland. Then revise the definition of "rich" and figure out the difference between that and per-capital GDP.
by Colman (colman at eurotrib.com) on Sun Feb 13th, 2011 at 10:45:25 AM EST
[ Parent ]
I am not defending your splendid low corporation tax.

And measured in gdp pro head, Ireland is still number two in the EU behind Luxemburg.

Now you could argue that gdp per head is meaningless. But that just shows how hollow this whole "lure multinationals with low taxes and lax regulation" to Ireland strategy was. It did produce high gdp numbers, but did it produce national wealth?

In the end, Ireland is richer then e. g. Slovakia or Estonia or Portugal, surely in the top quarter of the EU.

by IM on Sun Feb 13th, 2011 at 05:56:05 PM EST
[ Parent ]
Top half, I guess, but well behind the core still in wealth: infrastructure and so on.

I'm not defending the corporation tax rate - or any other Irish tax policy - either: the whole thing is part of the dumbass lack of an industrial policy, including a proper redistribuion policy, in the EU. However, given an EU that's being run in terms of national self-interest and beggar-your-neighbour economics, the Irish corporate tax rate pretty rational.

by Colman (colman at eurotrib.com) on Mon Feb 14th, 2011 at 07:23:15 AM EST
[ Parent ]
Given the experience in California I also would be wary of limiting the tax authority of local governments. That is a major component of the insolvency problem in California. Any limits have to be commensurate with the service obligations which local governments are supposed to provide.

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Fri Feb 11th, 2011 at 10:48:19 AM EST
[ Parent ]
Most European countries the size of Ireland have extensive and (semi-)automatic transfers from the central to the local level. D.C.-California relations isn't the appropriate analogy. In terms of scale, Los Angeles-Hollywood relations would be more accurate.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Wed Feb 16th, 2011 at 11:44:35 AM EST
[ Parent ]


Top Diaries

Occasional Series