In the end, it took Apple (doesn’t it always take Apple, as with the Foxconn workers story?), to bring the unpalatable reality of Ireland’s tax regime for corporations to prominence. Some US politicians are understandably unhappy that Apple (and quite a few other US corporations for that matter) is using Ireland as a conduit to reduce their tax bill to close to zero.
Of course, US corporations would not be in a position to take advantage of Ireland’s particularly generous tax regime if the lawmakers in their home country hadn’t made it easier for them to do so. Ultimately, it’s up to the politicians to construct and enforce a tax structure that ensures companies pay their ‘fair share’. But the irony of politicians publicly attacking the limitations of corporation tax rates when most corporation tax rates are where they are because of the capitulation of politicians to business interests should not be lost.
The sums involved are mind-boggling (although perhaps not as much as they would have been before the bank guarantee). Anyway, in Ireland, we’re well-versed in the arguments in favour of a low corporation tax rate. You only have to look at the jobs created over the years by the likes of Microsoft, Google, Apple, Intel and others and their investment in the country. For a small country, those jobs and investments are important.
Fair share
We have become accustomed to either shrugging off the charge of being a ‘tax haven’ or reacting with righteous indignation that anyone should dare to equate Ireland with the likes of the British Virgin Islands. On one level, this is understandable. Whatever tax those corporations are legally avoiding, it’s not tax they’re liable for here because the profits that are routed through Ireland are made in other countries. It’s not our infrastructure, education system or health system that they’re using without paying their ‘fair share’ towards.
Mind you, Irish people took a slightly different view a few years ago when U2 moved their publishing arm to The Netherlands to avoid paying higher taxes here although politicians, being complicit in the drafting of our own tax regime, were more circumspect.
From a channel perspective, our current tax regime provides certain theoretical advantages such as bringing large multinational corporations much closer to partners in Ireland. There is significant spin-off business for local suppliers and partners, for example in servicing and supporting large-scale HQs that would not be here otherwise.
In a small country with a finite number of skilled employees, indigenous businesses can struggle to recruit or hold on to staff in the face of competition from larger, more glamorous companies like Microsoft or Apple"
On the other side of the fence, multinationals get a very favourable tax rate, a stable environment; reasonable wage expectations; access to an English-speaking, educated workforce; decent infrastructure; and good transport and geographical links to the UK and mainland Europe. They also have far more influence in a small country like Ireland than they would in a much larger economy.
But there are a number of problems that come with an economy that is so reliant on the ‘kindness’ of multinationals. In a small country with a finite number of skilled employees, indigenous businesses can struggle to recruit or hold on to staff in the face of competition from larger, more glamorous companies like Microsoft or Apple. The influence of multinationals can also have a distorting effect on policies in areas such as education, infrastructure and, yes, taxation to the point where the sovereign state is disproportionately swayed by the demands of external organisations.
Safety valves
That influence is likely to become even stronger in times of economic hardship when the jobs delivered by the multinationals are even more valuable than they are in the boom times. It’s no surprise, therefore, that while the government has been prepared to levy cuts and tax increases almost exclusively on the general population of Ireland, it has held the corporation tax as sacrosanct and inviolable. There could be an argument to be made for a 1% or 2% increase when the country is in economic difficulty, perhaps with a pledge to return it to pre-crash levels by a set date, but no one has the confidence to make it.
One thing the policy of attracting multinationals hasn’t done is prevent the emigration of Ireland’s young when the economy is struggling, as it has been over the past five years. While emigration has traditionally been a safety valve to keep unemployment down (and reduce the stress on our welfare system) in the bad times, there’s no denying that a lot of skilled, young people are being lost to our economy and exported, tax-free, to other counties.
There’s a sad irony in the fact that while Ireland as a society has contributed significantly to help educate those young people, another country (be it the US, Canada or Australia) will gain tax revenues from them now they have gone somewhere else to work.
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