I have to politely differ with opinions recently published here on the issue of Ireland's corporate tax regime. I do not think that we have a comparatively low corporation tax rate because we suffer from any national inferiority complex. Nor do I think that we collectively fetishise that regime. Still less do I think that we keep our corporate tax rates low out of fear.
On the contrary, I believe that we keep corporate tax rates low because it is rational to do so in Ireland’s case. Our history has shown that a low corporate tax regime is, generally speaking, beneficial for our collective economic wellbeing.
The maintenance of EU member states’ competence to determine their own tax rates on most areas of economic activity is an important counterbalance to other economic forces at work within the EU’s single market which would tend to aggregate economic activity in the centre in terms of geography, population, physical resources, economic strength and political power.
These centripetal economic forces left to themselves work counter to the interests of the more vulnerable, more peripheral, and less politically and economically powerful member states.
How many of our largest corporate contributors to the exchequer would have located here if our corporate tax regime were similar to that of the UK, France or Germany?
Especially in a global economy of mobile and transnational capital where there is a need for foreign direct investment to create local employment, it is cavalier to suggest that important decisions on the location of enterprises are unaffected by the tax regime applying to their location.
And we should also ask as to what countries are loudest in their demands for tax approximation and the ending of what they term “unfair tax competition”, and why?
My impression is that it is generally the largest, most economically and politically powerful, the most historically well-developed and most capitalised states that shout most loudly – not the weakest.
Foreign investment
There are, of course, different forms of foreign investment. A tax-sensitive decision to locate a €100 million Intel chip-making plant in Ireland may be important nationally and regionally in terms of sustainable employment.
On the other hand, giving favourable tax treatment to foreign investors to buy entire apartment developments already under construction may add little or nothing by way of sustainable benefit to our wellbeing (unless it appears that we cannot manage to fund homebuilding from domestic resources – a very dubious proposition).
And of course there is always the fiscal policy issue of whether it is better to take less of a bigger cake in tax terms than more of a smaller cake. In relation to taxation and investment policies, the old chestnut should always be kept in mind: “that’s all right in practice, but will it work out in theory?”
We must remember too that there is often a very large difference between effective corporate tax rates and headline nominal rates.
We have an IDA which is charged with attracting foreign enterprise to locate in Ireland. What does it say about whether we can or should abandon our low corporate tax rate regime? How many of our largest corporate contributors to the exchequer would have located here if our corporate tax regime were similar to that of the UK, France or Germany?
How many of them would go if we shifted significantly in that direction? How many new major businesses would locate here in future if we were to do so? And what over time would be the exchequer consequences of doing so?
The important point is to serve our national interest by using our taxation-policy sovereignty to produce the optimal outcome for Ireland over the long term
What, if any, are the upsides and downsides of Ireland being seen as committed long term to low corporation tax rates?
Asking those questions does not betoken the politics of fear or some form of national immaturity or inferiority complex. It is perfectly rational to address those questions, and to come to a balanced and rational conclusion about what policy direction to take. It is irrational not to do so.
Vulture funds
Adopting an a priori ideological approach to national corporate taxation policy without carefully considering the risks and the benefits is not only irrational – it is irresponsible.
True, asking hardheaded questions as to whether an over-generous tax regime has been given to foreign vulture funds and foreign buy-to-rent and build-to-rent investors (as I believe has happened) is equally rational. The same applies to other loopholes which seem to produce egregiously low effective tax rates for particular activities – low fractions of our 12.5 per cent nominal rate.
The Government is right to be circumspect over the proposal to have a minimum international corporation tax rate without real guarantees that it is not just a step on the slippery slope of forced tax approximation.
The difference between 12.5 per cent and 15 per cent may not be great. But the danger for Ireland of further tax-rate approximation or radically different implementation of rates could be.