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Posts Tagged ‘tax loopholes’

The European Commission has recently proposed that a ‘common consolidated corporation tax base’ (CCCTB) should be established across the Eurozone. The Fine Gael government promptly rejected this, saying that it would implement tax harmonisation ‘through the back door’ – what they essentially mean is that it would undermine Ireland’s low corporate tax regime of 12.5% without explicitly claiming to do so.

Let’s get one thing straight: this is not true. The CCCTB does not seek to take away member states’ rights to set their own corporation tax rate. The purpose of the CCCTB is to centralise the calculation of tax rates in a single European institution. Or as the European Commission itself puts it:

The consolidated taxable profits of the group would be shared out to the individual companies by a simple formula so that each Member State can then tax the profits of the companies in its State at the tax rate that they – each Member State – chooses, (just like today).

So, what’s all the fuss over then? Well, this would greatly undermine multinational corporations’ ability to wash their profits through the Irish tax system – something they’ve engaged in ever since the low corporation tax rate was introduced. The Irish Times puts it subtly:

While not harmonising the tax rate, a CCCTB would certainly make it more difficult for international companies to allocate revenues into Ireland’s low-tax jurisdiction.

This legislation comes as the EU and other international bodies – most notably, the Obama administration, who called out Ireland by name back in ’09 – step-up attempts to close down tax loopholes across the globe. It’s not so surprising that they should seek to do this. Consider this story from last year which shows how Google reduced its effective tax payments to a mere 2.4% of its earnings – while estimates indicate that the US has lost some $60bn in revenue through international tax loopholes. And who are one of the main culprits? You guessed it…

Google Inc. cut its taxes by $3.1 billion in the last three years using a technique that moves most of its foreign profits through Ireland and the Netherlands to Bermuda.

So, when the EU starts cutting back on this sort of thing the Irish government gets a little uneasy – and understandably so.

Now, here’s the big question: what should we think about it? As a good leftie my first instinct is to denounce such tax dodging by evil corporations. But I realise that things aren’t so simple.

First of all, this isn’t some crass attempt by the government to line their pockets. They’re concerns probably have some merit. There’s every chance that multinationals do tend to keep capital sunk in Ireland because  they’re allowed to get up to this sort of mischief – and while it may have been easy to denounce corporate malfeasance during the boom years, with the current unemployment rate in Ireland what it is, my sympathies currently lie elsewhere.

Secondly, I anticipate that should Ireland ever grow a pair, default on her debt and exit from the ghastly Eurozone, the corporation tax issue is going to be a major determinate. As everyone who lives on this fair island knows, the corporation tax rate is a golden calf among political types. It is seen – not wrongly – as being THE policy measure which brought the multinationals to Ireland and any attempt to undermine it is seen by the political class as secular sacrilege.

So, if the left are serious about getting Ireland out of the Eurozone and out of debt, then they’re going to have to take a step back and question their priorities. They might find themselves allying with the forces of multinational corporate evil in the fight to save this country from the well-meaning but ultimately suffocating Euro-integrationists. Time for some Realpolitik, perhaps?

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