Corporation Tax in Ireland

Scottish

Given the perilous state of the governments finances in Ireland, and the seemingly constant stream of new indirect taxes aimed at the individual, is it not time to consider increasing the incredibly low taxes that corporations pay in Ireland?

As far as I am concerned, corporations are not being good citizens of this country.

gandalf

In theory its good however one big problem we also don't want to make it more attractive for them to leave the country. 2000+ redundancies announced yesterday things look like they are going to get very rough indeed.

It is patently obvious that the government need to take very aggressive actions to bring costs for businesses under control and even reduce them. So far the Coalition of Sedition have made the right noises but have not backed them up with actions.

Gandalf.

Scottish

I accept that things are going to get worse, and that the country needs every economic selling point it can get, however jobs are still being lost even with the low tax regime.

It seems to be the case that higher costs are driving some companies out of the country, and causing others to close altogether.

Could it not be argued that 12.5% corporation tax is far too low to allow the government to run a modern, sustainable country and that these criminally low taxes have done their job (encouraged investment). Now as the country earns a phase that could best be described as consolidation rather than growth, perhaps it is time for the government to aggresively reduce costs for businesses, but also look at increasing corp tax in order to reduce the burden on the individual.

As we are taxed more, the natural response is to look for increased wages to maintain living standards, which feeds into a less competitive environment.

I don't know then details of the corporation tax regime, but if Tesco etc are walking out of Ireland paying 12.5% tax, and ripping off the Irish consumer in the process, then I think we can all agree thats not right.

bloggs

If you increase Corp Tax, who will pay for it? It's the consumer, and this will no doubt drive prices up. I think a small cut in Corp Tax along with other ideas like capping insurance payouts on personal injury claims would reduce the cost of insurance which is one of the main factors for problems in small businesses.

Imposter

Ireland has no choice but to remain competitive in terms of corporation tax. Almost all corporations that can move to the far East will and there is no way for Ireland to stop that.

Ireland's strengths are that it's on the edge of Europe, is english speaking and has a relatively highly educated population. It has exploited these strengths well in the last while but now with the expansion of the EU it has to ensure that corporations who are in Ireland for these reasons don't leave.

Such companies are localisation companies in software and call-centres. Were these jobs to move to somewhere like Poland or Czech Rep. Ireland would have huge problems. So for these reasons Ireland has to try to remain competitive and raising corporation tax will not do that. (Just like profiteering by certain businesses won't help either.)

Scottish

I don't think that the consumer would have costs passed on. Thats not the situation in other countries. Ireland's corp tax rate is the lowest in Europe. The Netherlands and Luxembourg are closest, I think, with tax at about 17%. There is some room for an increase in this tax without foriegn investment leaving and drying up.

How could anyone want to lower it?? Just look at the profits the banks make. Its a disgrace that they should then pay 12.5% on their profits, while the burden on the individual increases.

I don't mean to be sensationalist, but how many lives would a 2% increase in corp tax save if it was directed at a reformed health service?

Only the other day, Oracle were bemoaning the cost of health insurance in Ireland. Thats cheeky, to say the least.

Lowering other burdens such as insurance etc should be the way forward at this juncture I agree. But I think the current situation with public services is untenable. Don't be fooled by the right wing argument that "reform" will cure all the ills.

SkepticOne

Unfortunately raising corporation tax won't result in an increase in revenues from corporation tax.

Ireland's low corpration tax means that large corporations book their profits in Ireland rather than some other country with higher tax.

In the pharmaceutical industry, for example, profits per employee of 700,000 euros and above are not uncommon. The typical profit per employee for an indgenous company is more like 40,000. The multinationals have the advantage that most of their research and development can be considered a cost whereas manufacturing is profit making for tax purposes. Once a drug has been developed, then it makes sence to locate the manufacturing wherever corporation tax is cheapest.

This explains why although Ireland's corporation tax is very low by EU standards, a very high percentage of revenue comes from corporation tax.

It also explains why Ireland has become the second largest manufacturer of boxed software in the world.

Three possible dangers exist:

1. The EU insists on 'harmonising' corporation tax rates. So far Ireland has resisted such efforts sucessfully.

2. The US changes the rules governing transfer pricing in order to get US based multinationals to pay a bit of tax in the US.

3. Other contries introduce low corporation tax regimes. I believe Estonia has a zero rate for some catogories of activity.

bloggs

Originally posted by Scottish
Don't be fooled by the right wing argument that "reform" will cure all the ills.

But we do need reform, look at hospitals in France, Germany, Italy. The are top quality, the Irish taxpayer pays up to 20k per year to fund the health service and it's in a shamples! We need radical reform, not more spending. Why can't the government just hire some admins from other European countries, pay them the high salaries and get them to overhaul our health service, before more people die.

The reason the main banks are making such huge profits is because people pay the charges, don't bank with the likes of AIB/BOI, as they are just a ripp off. Use a building society or the credit union if possible as they aren't as greedy!

I think the government shoud listen more to the concerns of business and see where most of their money goes. To reduce the burden on companies (espcially local businesses) would help employment. If Corp Tax is one of those, then so be it.

sceptre

Both of you are right really. As bloggs has said, we need reform in the health service specifically (and cost control mechanisms in other services as well). Scottish is right in that simple "reform" isn't a panacea to cure all ills.

Scottish

Unfortunately raising corporation tax won't result in an increase in revenues from corporation tax

That makes no sense. How can a slight increase in percentages not lead to an increase in revenue?? Is there some accounting sleight of hand at work? Are you telling me that increasing the % that the government takes from profits booked, will not lead to any increased revenue?? I'm not an account, but on the face of it that doesn't add up.

But we do need reform, look at hospitals in France, Germany, Italy

All of whom have higher levels of tax both personal and corporate (by some distance) than Ireland. True, the framework within which hospitals and other public services needs to be radically overhauled. But don't beleive reform is the only answer. People swallowed that line in the UK for 18 years, and it destroyed the place. Reforms need to take place, but there is also need for funding.

SkepticOne

Originally posted by Scottish
That makes no sense. How can a slight increase in percentages not lead to an increase in revenue?? Is there some accounting sleight of hand at work? Are you telling me that increasing the % that the government takes from profits booked, will not lead to any increased revenue?? I'm not an account, but on the face of it that doesn't add up.

Yes. Despite the problems of poor infrastructure, Ireland is still very attractive to US multinationals because of its low corporation tax.

It is possible for a multinational company to book all its losses in a high corporation tax zone (e.g. the US) and book all its profits in a low corporation tax zone. You will probably find that companies like Microsoft despite their enomous profits pay hardly any tax in the US. Where they do pay it countries like Ireland with low corporation tax.

I don't have the figures, but a large percentage of corporation tax revenue comes from these corporations.

shotamoose

Originally posted by Scottish
That makes no sense. How can a slight increase in percentages not lead to an increase in revenue?? Is there some accounting sleight of hand at work? Are you telling me that increasing the % that the government takes from profits booked, will not lead to any increased revenue?? I'm not an account, but on the face of it that doesn't add up.

Because corporations would book their profits somewhere with lower corporate tax. So the amount you're taxing reduces, and if it reduces enough your overall take is actually lower.

It's a real problem. I personally don't think corporations contribute enough to public spending in Ireland, but in the era of the footlose trans-national company they have the advantage. Once you have lowered corporation tax it is incredibly difficult to raise it again - if it's even suggested by a government every CEO and chamber of commerce will jump onto the airwaves wailing about the impending apocalypse.

Scottish

OK, I know about transfer pricing, and I realise that a lot of money may flow in here that doesn't actually belong.

However, that money would probably still flow through here, even if there was a slight increase in the amount.

For the banks, retailers etc to get away with paying such low levels of tax is insulting.

And as for MS etc booking revenue through low tax regimes, surely Bermuda is more attractive (Accenture certainly think so)?

SkepticOne

Although it may seem to some that Ireland has benefitted hugely from low corporation tax and the revenue it has generated, in the long term it is bad news for Ireland, imo. It has meant that infrastructural issues like roads and telecommunications as well as business costs like insurance have been neglected. Now, despite the huge benefits low corporation tax confer on Ireland, these other issues are becoming very serous. Unfortunately, this make us even more dependent on low corporation tax in order to retain these companies.

Scottish

Although it may seem to some that Ireland has benefitted hugely from low corporation tax and the revenue it has generated, in the long term it is bad news for Ireland, imo. It has meant that infrastructural issues like roads and telecommunications as well as business costs like insurance have been neglected. Now, despite the huge benefits low corporation tax confer on Ireland, these other issues are becoming very serous. Unfortunately, this make us even more dependent on low corporation tax in order to retain these companies

Jesus, I could not agree more

SkepticOne

Originally posted by Scottish
And as for MS etc booking revenue through low tax regimes, surely Bermuda is more attractive (Accenture certainly think so)?

Ireland is just one of an increasing number of countries getting in on this game. Initially, Ireland had the advantage of speaking American, being part of the EU and, at the time, a relatively low cost base.

sovtek

Originally posted by bloggs
Why can't the government just hire some admins from other European countries, pay them the high salaries and get them to overhaul our health service.

...transport system, road system, drug/alcohol laws, corporate oversight, competition, taxation, labor relations....etc.