Corporation Tax

TalkToEU: John

We've had a good few questions into the talktoeu.ie website recently from people asking about Ireland's corporation tax rate given the recent bailout and involvement in Ireland's finances of the EU and the IMF. Here's the answer we give.

Under the EU treaties, tax matters can only be decided unanimously by governments in the European Council. This means if even one country disagrees, no change will take place. While some politicians in other Member States may express their views on this from time to time, there is no power to change Ireland's corporation tax. That rate is now stands at 12.5%, the third lowest in the EU and much lower than the EU average of approx. 22%. There are huge differentials in corporation tax rates in the the EU. Here are some examples: Malta 35%; Belgium 34%; Italy 31.4%; Poland 19%; Romania 16%; Latvia 15%; Cyprus;10%.

We welcome any discussion on the topic.

Max Power1

TalkToEU: John wrote: »

We've had a good few questions into the talktoeu.ie website recently from people asking about Ireland's corporation tax rate given the recent bailout and involvement in Ireland's finances of the EU and the IMF. Here's the answer we give.

Under the EU treaties, tax matters can only be decided unanimously by governments in the European Council. This means if even one country disagrees, no change will take place. While some politicians in other Member States may express their views on this from time to time, there is no power to change Ireland's corporation tax. That rate is now stands at 12.5%, the third lowest in the EU and much lower than the EU average of approx. 22%. There are huge differentials in corporation tax rates in the the EU. Here are some examples: Malta 35%; Belgium 34%; Italy 31.4%; Poland 19%; Romania 16%; Latvia 15%; Cyprus;10%.

We welcome any discussion on the topic.

Close the book. No discussion.


Tell the EU to get their hands off our CT rate. If it is any way raised, we can kiss goodbye to our FDIs, and the 1000s of jobs they have here.

evercloserunion

Max Power1 wrote: »

Close the book. No discussion.


Tell the EU to get their hands off our CT rate. If it is any way raised, we can kiss goodbye to our FDIs, and the 1000s of jobs they have here.

You didn't actually read the post you quoted did you?

The EU don't have their hands on our CT rate.

View

Max Power1 wrote: »

If it is any way raised, we can kiss goodbye to our FDIs, and the 1000s of jobs they have here.

We raised our CT rate from 10% to 12.5% in the early 90's. It did not stop FDI then or the 1000s of jobs created both directly and indirectly as a result.

Now things of course could be different today were we to do so today we can only speculate on that at best.

One thing should be clear though, if we opt for low corporation tax then government spending on services has to be lower also - part of the reason we are in this mess is we want the same services as high corporation tax states but haven't got the money to pay for them as a result of our not having the corresponding tax rates as those states.

censuspro

View wrote: »

We raised our CT rate from 10% to 12.5% in the early 90's. It did not stop FDI then or the 1000s of jobs created both directly and indirectly as a result.

Now things of course could be different today were we to do so today we can only speculate on that at best.

One thing should be clear though, if we opt for low corporation tax then government spending on services has to be lower also - part of the reason we are in this mess is we want the same services as high corporation tax states but haven't got the money to pay for them as a result of our not having the corresponding tax rates as those states.

The whole purpose of taxation is to raise revenue regardless of what the actual rate is. The concept that high taxes equates to higher tax revenues is too presumptious. When Ireland reduced it CGT rate from over 40pc to 20pc the tax revenues actually increased.

McDave

censuspro wrote: »

The whole purpose of taxation is to raise revenue regardless of what the actual rate is. The concept that high taxes equates to higher tax revenues is too presumptious. When Ireland reduced it CGT rate from over 40pc to 20pc the tax revenues actually increased.

And the CGT cut contributed in turn to excess asset price inflation. And look where we are now.

I personally wouldn't argue for a major increase in CT for any reason. And I think the arguments being offered by our EU partners about "normalising "our tax regime are wide of the mark on CT.

However, I still think we have to adjust our CT regime, or at least how we implement it. For instance, I think we have abused CT by allowing brass plate operations in the IFSC to deprive our EU colleagues of major tax receipts all for the sake of a quite modest number of jobs in the Docklands. We could concede on this issue and opt to exclude finance operations from our CT regime.

We should also take on board the reality that our CT regime enables companies to avoid paying tax. Even if it's not in our own direct interests, others can argue that MNCs should pay some level of tax, and devise methods to ensure that they do. On this point, we shouldn't ignore the CCCTB proposal. Even if we block it at EU level it is still something that could be imposed almost as effectively on a multilateral basis.

censuspro

McDave wrote: »

And the CGT cut contributed in turn to excess asset price inflation. And look where we are now.

I personally wouldn't argue for a major increase in CT for any reason. And I think the arguments being offered by our EU partners about "normalising "our tax regime are wide of the mark on CT.

However, I still think we have to adjust our CT regime, or at least how we implement it. For instance, I think we have abused CT by allowing brass plate operations in the IFSC to deprive our EU colleagues of major tax receipts all for the sake of a quite modest number of jobs in the Docklands. We could concede on this issue and opt to exclude finance operations from our CT regime.

We should also take on board the reality that our CT regime enables companies to avoid paying tax. Even if it's not in our own direct interests, others can argue that MNCs should pay some level of tax, and devise methods to ensure that they do. On this point, we shouldn't ignore the CCCTB proposal. Even if we block it at EU level it is still something that could be imposed almost as effectively on a multilateral basis.

CGT applies to all assets, not just property. The type of tax incentives that I think you are referring to are section 23 reliefs which applied exclusively to property.

There is common misconception that Ireland allows brass plate companies operate in the IFSC. In order for a company to become tax resident in Ireland, the central management and control must be located in Ireland. This includes: where the directors of the company live, where the company headquarters are located, where company policy is determined and where major contracts are negotiated. It’s worth noting that if MNC’s uprooted and left Ireland, it’s highly unlikely that they would relocate in another EU country, most likely they would move to India, Asia or (if they did relocate in Europe) Eastern Europe where they have lower taxes and labour costs.

greendog34

lets offer companies that employ 500 or more new workers, a rate of 3% for 10 years then returning to the normal 12% after that it is our best way of turning our job marked around quickly.
make income take less complicated one standard rate rather then all these hidden taxes that take a 1 or 2% here and there

Scofflaw

censuspro wrote: »

There is common misconception that Ireland allows brass plate companies operate in the IFSC. In order for a company to become tax resident in Ireland, the central management and control must be located in Ireland. This includes: where the directors of the company live, where the company headquarters are located, where company policy is determined and where major contracts are negotiated.

Unfortunately, such requirements can be met relatively easily, just as they are in tax havens like Sark:

2. Determination of Tax Residency

Tax residency in Ireland is determined, like other countries, by a number of factors, with central management and control being an integral component of this determination. Accordingly, a company is deemed to be tax resident in Ireland if it can demonstrate that central management and effective control are exercised in Ireland. As described in Section 5, IMC can assist a company demonstrate it is tax resident in Ireland.

3. Availing of Ireland’s Low Corporate Tax Rate

There are two corporate tax rates in Ireland—12.5% for active trading income and 25% for nontrading passive income. To be eligible for the 12.5% tax rate, a company must show that it is actively involved in trading and have substance in its business in Ireland.

4. Achieving the Required Objectives of Substance

To achieve the required objectives of substance and to demonstrate a presence in Ireland, a company must satisfy a number of criteria. These criteria include:
Presence of an Irish resident on the company’s Board of Directors;
Management and control of the company are exercised in Ireland; and
Active involvement in trading from Ireland.

5. IMC can Assist Companies to Demonstrate Substance

IMC offers a suite of services that can ensure that a company fulfils the objectives of substance listed above.

a. Presence of an Irish Resident on the Company’s Board of Directors

The presence of an Irish resident on a company’s Board of Directors is a key factor in determining tax residency. IMC can provide a professionally qualified person(s) to participate on the Board of your Irish company. The Irish resident Director actively assists in the management and control of the Irish business and provides valuable local and international knowledge and expertise to the Irish business. The Director is involved in all strategic matters of the company and ensures that any decisions or important contracts or agreements are discussed, ratified and signed by the Irish Board.

b. Management and Control of the Company are Exercised in Ireland

When determining where central management and control are exercised, a number of factors are examined. These factors include the:

[*]Location of the directors’ meetings—IMC has the boardroom facilities to hold directors’ meetings. IMC also provides company secretary and secretarial services to arrange Board meetings, circulate meeting agendas and record Board meeting minutes, etc.;

[*]Residence of the majority of directors—IMC can provide a professionally qualified person(s) to sit on the Board of your Irish company and participate on a daily basis with reference to the issues arising;

[*]Location of shareholders meetings—IMC has the boardroom facilities to hold shareholders’ meetings or to arrange alternative venues if required;

[*]Location of head office of the company—IMC can provide both a registered address and a business address for clients. This business address can be a physical office space allocated and used to house client employees permanently residing in Ireland. IMC can also provide direct dial telephone numbers and re-direction as appropriate, information technology requirements etc. Furthermore, IMC can assist in the recruitment of dedicated or part-time employee(s) to the Irish company;

[*]Physical location of the books of accounts, the minute books, the company seal and the share register—IMC can house all your Irish business’s records and documentation. It can also provide company secretary services to ensure that your Irish operation complies with Irish legal filing obligations; and
[*]Location of the company’s bank accounts—IMC can open bank accounts for your Irish business and deal with all anti-money laundering requirements. It can also deal with the dayto- day administration of bank accounts.

c. Actively Involved in Trading in Ireland

IMC additionally offers a range of financial, administrative, warehousing and customer services that can assist companies in demonstrating that it is actively trading in Ireland. These services include the provision of:

[*]Financial accounting services such as the preparation of management accounts (monthly, quarterly, yearly), preparation of financial accounts for submission to audit, preparation of reporting packs as required by Groups, etc.;

[*]Administration services to the company for day-to-day tasks such as ordering, invoicing, reception, facilitation of central point contact for the global business, payments, receivables, etc.;

[*]Warehousing services such as sourcing a suitable warehousing solution where product is physically routed through Ireland. IMC also houses sample products for and on behalf of clients; and

[*]Customer services whereby IMC staff will receive and deal with customer orders and liaise with the warehouse in respect of same in-house.

In other words, you can pretty much outsource the whole "being an Irish company" to professional handlers for a fee. Calling your Irish operation "HQ" and making sure you fly your directors in for at least a yearly board meeting to meet your Irish-resident director is a lot of the battle.

It's not really about what tax requirements say, it's about how easy it is to meet the requirements without really having any involvement in Ireland.

cordially,
Scofflaw

censuspro

Scofflaw wrote: »

Unfortunately, such requirements can be met relatively easily, just as they are in tax havens like Sark:

Scofflaw wrote: »

In other words, you can pretty much outsource the whole "being an Irish company" to professional handlers for a fee. Calling your Irish operation "HQ" and making sure you fly your directors in for at least a yearly board meeting to meet your Irish-resident director is a lot of the battle.

It's not really about what tax requirements say, it's about how easy it is to meet the requirements without really having any involvement in Ireland.

cordially,
Scofflaw

You left out the part where it says "The Irish resident Director actively assists in the management and control of the Irish business and provides valuable local and international knowledge and expertise to the Irish business".

Those are also available in other countries including Switzerland, France and Germany. Section 811A TCA 97 allows revenue to challenge and raise an assessment on any transaction or structure which in their opinion is an anti avoidance mechanism. There has been numerous case law on the issue regarding residency. De Beers Consolidated Mines v Howe STC 198, Calcutta Celantta Jute Mills Co. Ltd. v Nicholson 1 TC 83, Todd v Egyptian Delta Land and Invest Co. Ltd, Wood v Holden 2006 STC 441, Untelrab Ltd. v McGregor and Related Appeals 1996 STC (SCD) 1

If companies are operating as brass plate companies in Ireland with no physical presence then they run the risk of anti avoidance legislation the same way an individual runs the risk if they submit a false or misleading tax return. Also, the brass plate companies that you refer to employ approx 100,000 people in this country.

Scofflaw

censuspro wrote: »

You left out the part where it says "The Irish resident Director actively assists in the management and control of the Irish business and provides valuable local and international knowledge and expertise to the Irish business".

Those are also available in other countries including Switzerland, France and Germany. Section 811A TCA 97 allows revenue to challenge and raise an assessment on any transaction or structure which in their opinion is an anti avoidance mechanism. There has been numerous case law on the issue regarding residency. De Beers Consolidated Mines v Howe STC 198, Calcutta Celantta Jute Mills Co. Ltd. v Nicholson 1 TC 83, Todd v Egyptian Delta Land and Invest Co. Ltd, Wood v Holden 2006 STC 441, Untelrab Ltd. v McGregor and Related Appeals 1996 STC (SCD) 1

If companies are operating as brass plate companies in Ireland with no physical presence then they run the risk of anti avoidance legislation the same way an individual runs the risk if they submit a false or misleading tax return. Also, the brass plate companies that you refer to employ approx 100,000 people in this country.

Yes, which is what makes us a 'semi tax haven' rather than a pure tax haven.

cordially,
Scofflaw

censuspro

Scofflaw wrote: »

Yes, which is what makes us a 'semi tax haven' rather than a pure tax haven.

cordially,
Scofflaw

A semi tax haven becuase the firms that are located here are involved in real productivity. So what's the issue?

Scofflaw

censuspro wrote: »

A semi tax haven becuase the firms that are located here are involved in real productivity. So what's the issue?

The 'tax haven' bit, perhaps? You're claiming that Ireland is a more competitive economy than France or Germany, which isn't the case - our competitiveness on any index of production is lower than theirs (much lower in the case of Germany), and is compensated for by operating as a semi tax haven.

The problem I have with that is that as a model it's not very sustainable, because all it takes for someone to wipe out the 'competitive advantage' of our semi tax haven status is legislation - whereas to wipe out Germany's competitive advantage would require hard work and time. That's aside from any 'moral hazard' issues such a model raises.

cordially,
Scofflaw

censuspro

Scofflaw wrote: »

The 'tax haven' bit, perhaps? You're claiming that Ireland is a more competitive economy than France or Germany, which isn't the case - our competitiveness on any index of production is lower than theirs (much lower in the case of Germany), and is compensated for by operating as a semi tax haven.

Where exactly did I make that claim???

Scofflaw

censuspro wrote: »

Where exactly did I make that claim???

On the other corporation tax thread:

censuspro wrote:

There is nothing to stop France or Germany from reducing their CT rates if they wanted. What Sarkozy is effectively saying is that we cannot compete with you so we want you to raise your prices. They argue that this is unfair competition but on the same basis can Ireland argue is it unfair competition that France and Germany have huge internal markets that they can sell in to, is it unfair competition that France and Germany are in continental Europe where they can export a lot easier into other markets.

If what you were claiming was more nuanced than an outright claim that Ireland was a more competitive economy than France or Germany, I'm willing to be corrected.

However, I don't regard something that can be taken away by a legislative change here or through action abroad as being meaningfully 'competitive'.

cordially,
Scofflaw

later12

Scofflaw wrote: »

The problem I have with that is that as a model it's not very sustainable, because all it takes for someone to wipe out the 'competitive advantage' of our semi tax haven status is legislation - whereas to wipe out Germany's competitive advantage would require hard work and time. That's aside from any 'moral hazard' issues such a model raises.

I really don't understand why people exaggerate this problem so often. Yes Ireland is a semi tax haven, but why would that be removed by legislation? Or wiped out? Ore more pressingly, How? Please don't suggest the CCCTB, my understanding (although it is open to correction) is that most of the Eurozone, the vast majority in fact, would be net losers under CCCTB.

I agree that Ireland must work harder to lower further its unit labour costs, ameliorate its competitive advantages (which includes tax, and indeed ought to do so), and by improving the quality and the flexibility of its labour pool. But these are often slow burning means of recovery, and there is no reason why the Government cannot get on with the business of that while fully endorsing our position as a semi haven. Win Win.

We have lots of other advantages by the way, apart from our tax rate. I remember once pontificating to a colleague that the only reason our employer was in Ireland was because of the competitive Irish tax rate when he quite correctly reminded me that not only are there lower rates available, we were, and are the only English speaking country in the Eurozone - apart from Malta who wouldn't really have the same commercial and banking infrastructure. That really does matter to US investors and other internationals who want to tap into the Euro market. Don't overly underestimate Irish business potential or dismiss it all as merely tax based, that's all I'd say.

Having said that, yes the tax helps; there is nothing wrong with that, at all.

I cannot fully express how impressed I am at IMC, that Irish company who you linked to that aid multinationals in domiciling here by holding their company stamp(!) and nominally appointing some lucky citizen to their board.
That's the kind of innovation in business that Ireland needs. I hope that company does very well indeed, after all they are doing the state some service by enticing foreign companies to pay their corporation tax to Ireland instead of Bermuda or Estonia. I believe they are a Clare company and I see they have received fitting endorsements from Shannon Development and Pwc. I wish many more Irish businesses borrowed their innovative approach.

View

censuspro wrote: »

The whole purpose of taxation is to raise revenue regardless of what the actual rate is.

You are welcome to point out where I suggested that there was an alternative purpose to taxation.

censuspro wrote: »

The concept that high taxes equates to higher tax revenues is too presumptious.

There is no "one-to-one" relationship between the two, as it is the underlying transactions on which the taxes are levied that are the critical factor, but it is roughly true. It is safe to presume that the Government believes it will collect more tax revenue with its current policies of raising taxes etc., not less.

censuspro wrote: »

When Ireland reduced it CGT rate from over 40pc to 20pc the tax revenues actually increased.

True, but CGT was reduced in either '97 or '98 (If memory serves me rightly) - that was practically at the start of both the global "Dot Com-driven stock market bubble and our own property bubble. As such, the increase in CGT revenues arose because the underlying transactions, upon which CGT are levied increased, both in volume and in booked profit - not because everyone suddenly decided to buy and sell dot com shares to avail of the lower CGT rate.

View

later10 wrote: »

I really don't understand why people exaggerate this problem so often. Yes Ireland is a semi tax haven, but why would that be removed by legislation? Or wiped out? Ore more pressingly, How?

An Act of (the US) Congress would do the trick. The US is due to have the highest Corporation Tax rate in the OECD now that Japan is due to reduce their rate. As to why? They want (and need) the money and why should they stand by and watch US corporations structure their global transactions so they divert huge amounts of their trade through Ireland?

later12

View wrote: »

True, but CGT was reduced in either '97 or '98 (If memory serves me rightly) - that was practically at the start of both the global "Dot Com-driven stock market bubble and our own property bubble.

The dotcom bubble was well underway, although I'm not sure why that is supposed to be relevant, but the Irish property bubble certainly was not. The Irish property bubble didn't really arise until around 2001.

later12

View wrote: »

The US is due to have the highest Corporation Tax rate in the OECD now that Japan is due to reduce their rate. As to why? They want (and need) the money and why should they stand by and watch US corporations structure their global transactions so they divert huge amounts of their trade through Ireland?

Actually it is my understanding that US companies already face the highest corporate tax rate in the world, regardless of their economic troubles.

Secondly, they are under huge pressure, particularly in the technology sector, to reduce their corporate tax rate to compete against the emerging economies growing capabilities in attracting in investment from the tech sector. If anything you ought to be suggesting that it is a reduction in their rate that is a danger.

Anyway, my point is that we ought to heartily endorse our onshore haven status while we get the economy (hopefully) back on track, not that we depend on corporate tax forevermore.

McDave

censuspro wrote: »

CGT applies to all assets, not just property. The type of tax incentives that I think you are referring to are section 23 reliefs which applied exclusively to property.

I'm not referring to s23 at all (although it's role in stimulating property inflation is obvious).

CGT clearly applies to all assets. You would expect lower CGT to increase transactional behaviour on assets like shares. But it also had the effect of changing people's attitudes to property, and turned houses and apartments into classes of commodity to be traded, and in extreme cases flipped. This altered the nature of demand for property and helped stimulate a relentless increase in property prices.

McDave

censuspro wrote: »

There is common misconception that Ireland allows brass plate companies operate in the IFSC. In order for a company to become tax resident in Ireland, the central management and control must be located in Ireland. This includes: where the directors of the company live, where the company headquarters are located, where company policy is determined and where major contracts are negotiated. It’s worth noting that if MNC’s uprooted and left Ireland, it’s highly unlikely that they would relocate in another EU country, most likely they would move to India, Asia or (if they did relocate in Europe) Eastern Europe where they have lower taxes and labour costs.

I'll admit to not being an expert on practice in this field, but the formal position you outline doesn't at all conform with my understanding of many operations in Ireland which channel large funds through offices staffed by very small numbers of people.

If an MNC doesn't want to relocate anywhere in the EU, then that's clear evidence AFAIC that its intentions are to process its accounts here, and that it is not actually interested in selling into the EU. That's where the CCCTB will to some extent call the bluff of any MNC (EU or non-EU) which operates here. Do business - pay tax. Or take your transfer-pricing/dodgy accounting elsewhere.

FreudianSlippers

I think we should raise our CT to 13.5%.

View

later10 wrote: »

The dotcom bubble was well underway, although I'm not sure why that is supposed to be relevant,

The Dotcom bubble only burst in 2001. In the run-up to that time, the volume and value of related share trading increased worldwide from roughly 1995 onwards (when Netscape IPOed). Needless to say, anyone trading in those shares - resident in Ireland - would potentially have had to pay CGT as a result. That would include the employees of US Hi-Tech MNCs based in Ireland who had company shares or share options (A few of those employees made serious money that way).

later10 wrote: »

but the Irish property bubble certainly was not. The Irish property bubble didn't really arise until around 2001.

That depends on how wide you want to define the bubble. Property prices in the late 90's grew at double digit rates in at least one, if not, two years (at a time of low and falling inflation here). I would personally classify a situation where a non-productive asset class (i.e. property) increases at a rate that is multiple times the inflation rate as constituting a price bubble. All such rises would have increased the CGT take from investment properties sold in that time period.

View

later10 wrote: »

Actually it is my understanding that US companies already face the highest corporate tax rate in the world, regardless of their economic troubles.

Secondly, they are under huge pressure, particularly in the technology sector, to reduce their corporate tax rate to compete against the emerging economies growing capabilities in attracting in investment from the tech sector. If anything you ought to be suggesting that it is a reduction in their rate that is a danger.

It is possible that the US may go down the route although they seem to be in no rush to do so.

The main point is though it doesn't have to in the short term and could very easily decide it wants its MNCs to pay their taxes in the US rather than overseas. A serious change in US tax rules would impact Ireland very adversely, without having any of the possible benefits that a CCCTB system might have of simplified accounting procedures for firms operating within the EU.

later10 wrote: »

Anyway, my point is that we ought to heartily endorse our onshore haven status while we get the economy (hopefully) back on track, not that we depend on corporate tax forevermore.

That is one view. Given the huge hole in our budget, I could see us doing mass mandatory lay-offs in the PS, sharply increased personal taxation rates, VAT etc. and - even with all that - the corporate tax rate would still need to go up to 15% or more.

later12

View wrote: »

That depends on how wide you want to define the bubble.

Your suggestion is contrary to pretty much every professional understanding of the economic situation that exists in terms of both academic economic research, banking reports and reports on the wider financial crisis that exists out there. Property prices grew quite modestly in the 1990s, even the late 1990s, I really don't see how someone could realistically argue that.

It is possible that the US may go down the route although they seem to be in no rush to do so.

Again, that is just incorrect on a factual level. This has been all over both the financial and mainstream news. I don't want to tell anyone what they should be debating, but surely this is the point you should be countering me with, not suggesting that the US will up its corporate rate.

http://www.rte.ie/news/2011/0126/obama-business.html

Scofflaw

later10 wrote: »

Your suggestion is contrary to pretty much every professional understanding of the economic situation that exists in terms of both academic economic research, banking reports and reports on the wider financial crisis that exists out there. Property prices grew quite modestly in the 1990s, even the late 1990s, I really don't see how someone could realistically argue that.

Because it's accurate - house price rises from 1996 on were at almost exactly the same rate as the 'bubble'.

See here: http://blogs.reuters.com/felix-salmon/2010/01/12/house-price-chart-of-the-day/

Or here: http://www.statusireland.com/statistics/most-popular/3/Irish-House-Prices-Since-1996.html

cordially,
Scofflaw

censuspro

View wrote: »

True, but CGT was reduced in either '97 or '98 (If memory serves me rightly) - that was practically at the start of both the global "Dot Com-driven stock market bubble and our own property bubble. As such, the increase in CGT revenues arose because the underlying transactions, upon which CGT are levied increased, both in volume and in booked profit - not because everyone suddenly decided to buy and sell dot com shares to avail of the lower CGT rate.

If people were buying and selling dot com shares on such a regular basis as you suggest then CGT would not apply as they would carrying out a trading activity of buying and selling shares and therefore income tax would apply.

BTW, what are we actually debating on this thread???

Scofflaw

censuspro wrote: »

If people were buying and selling dot com shares on such a regular basis as you suggest then CGT would not apply as they would carrying out a trading activity of buying and selling shares and therefore income tax would apply.

BTW, what are we actually debating on this thread???

I don't think there's a single issue under discussion as such - more a case of people putting forward slightly different viewpoints on the Irish corporation tax system and its role in Ireland's economy.

cordially,
Scofflaw

later12

Scofflaw wrote: »

Because it's accurate - house price rises from 1996 on were at almost exactly the same rate as the 'bubble'.

See here: http://blogs.reuters.com/felix-salmon/2010/01/12/house-price-chart-of-the-day/

Or here: http://www.statusireland.com/statistics/most-popular/3/Irish-House-Prices-Since-1996.html

cordially,
Scofflaw

The problem isn't necessarily the rate of growth, or certainly not rate alone. It's very much a question of volume too. You can pour a pint of water into a cup as fast as you can pour in 10 cubic centimetres - 10 cubic centimetres will sit there quite happily every time. The energy that is generated depends on volume and rate of the inflow, not the rate of that flow in itself.

It certainly would be pushing it to say that Ireland was experiencing a property bubble in 1996.

View

later10 wrote: »

Your suggestion is contrary to pretty much every professional understanding of the economic situation that exists in terms of both academic economic research, banking reports and reports on the wider financial crisis that exists out there. Property prices grew quite modestly in the 1990s, even the late 1990s, I really don't see how someone could realistically argue that.

The Government commissioned "The Bacon Report" in the late '90's because - at the time - there was public outrage that first-time buyers were being squeezed out of the market. That was directly due to the rise in property prices at the time.

later10 wrote: »

Again, that is just incorrect on a factual level. This has been all over both the financial and mainstream news. I don't want to tell anyone what they should be debating, but surely this is the point you should be countering me with, not suggesting that the US will up its corporate rate.

http://www.rte.ie/news/2011/0126/obama-business.html

I have never said that the US will increase its corporate tax rate. In recent years though, it has not lowered its corporate tax rate. Obama's call is not the first in this area and it remains just that - a call for change - until such time that Congress decides to act on it.

Also, the detail in that RTE report includes:

Among the business tax benefits Obama wants to scrap are those letting companies defer taxes on income earned abroad.

and:

While some companies would see lower rates from a corporate tax cut, others, such as those that do extensive business abroad, might see taxes rise.

It would be perfectly possible for the US to both lower its corporate tax rate and change its tax rules for the non-US operations of US companies. The first wouldn't hugely impact us while the second might well do so.

As such, we could well keep our current system as it is only to find it is essentially "wiped out" as a result of actions taken elsewhere.

View

censuspro wrote: »

If people were buying and selling dot com shares on such a regular basis as you suggest then CGT would not apply as they would carrying out a trading activity of buying and selling shares and therefore income tax would apply.

True, but people typically are more inclined to invest in and trade more on the stock exchange when they "boom" just as they did in the property market. A few more profitable trades a year by "ordinary investors" can results in an increase in CGT take. As also does the MNC employee cashing in some or all of their share options that they got 7 or 8 years previously as they have soared in value over the years.

censuspro wrote: »

BTW, what are we actually debating on this thread???

Corporation Tax initially - it got side-tracked onto CGT as there seems to be an assumption that cutting CGT somehow automatically resulted in a higher CGT take whereas the economic context in which that tax cut took place has to be considered.

Scofflaw

later10 wrote:

The problem isn't necessarily the rate of growth, or certainly not rate alone. It's very much a question of volume too. You can pour a pint of water into a cup as fast as you can pour in 10 cubic centimetres - 10 cubic centimetres will sit there quite happily every time. The energy that is generated depends on volume and rate of the inflow, not the rate of that flow in itself.

To be blunt, that's hand-waving.

What you said was:

Property prices grew quite modestly in the 1990s, even the late 1990s

and that's not the case. They grew at the same rate as during the agreed 'property bubble'.

It certainly would be pushing it to say that Ireland was experiencing a property bubble in 1996.

That might be the case - but to show that it's so, what you probably ought to look at is whether they rose faster than incomes, rather than inaccurately claiming the rate of rise was modest.

Unfortunately, that doesn't really back the case either:



cordially,
Scofflaw

later12

Scofflaw wrote: »

To be blunt, that's hand-waving.

To be blunt, I'm correcting your mistake. You pointed out the rate of growth without looking at the volume in the post I refer to, that's a pretty basic, significant oversight.

and that's not the case. They grew at the same rate as during the agreed 'property bubble'.

They grew at the same rate in the late 90s but I'm saying that they grew modestly... that's a question of magnitude, not rate. If one were talking about rate one might say that prices grew quickly or slowly. Real house prices were modest, as was the percentage of the workforce in construction and related industries up until the time when the rise in house prices began to emerge as bank-led growth around the turn of the millenium and the boom started in earnest. Before that boom, these things were at acceptable levels.

That might be the case - but to show that it's so, what you probably ought to look at is whether they rose faster than incomes, rather than inaccurately claiming the rate of rise was modest.

But first of all, are you aware that i am responding to suggestion about a 1996 bubble? It was later when the upward trend even emerged.

Ireland was experiencing significant enough wage restraint up until about 2000 so I would be careful about crudely linking the price to incomes alone in trying to ascertain the presence of a bubble; one ought to look at price:rental ratios and other PV adjusted models as well as, perhaps, simply correlating income derived from property to GDP.

Scofflaw

No, frankly I think you're engaged in arm-waving to avoid accepting that you were wrong about the rate of house price growth in the late Nineties. I have a good grasp of analogy generally, but I cannot see the relevance of your parable about the pouring water to your original erroneous statement that "property prices grew quite modestly in the 1990s, even the late 1990s". They didn't. Nor do I see the relevance of prices/GDP or any of the other points raised. I don't have a position on your main argument, I'm simply correcting an incorrect factual claim. How you work the corrected information into your argument is up to you - everyone is entitled to make their own argument, but nobody is entitled to make their own facts.

If you really don't want to admit the error, that's fine - it's very visible. But please don't engage in hand-waving to attempt to avoid admission of factual errors.

cordially,
Scofflaw

later12

Scofflaw wrote: »

No, frankly I think you're engaged in arm-waving

I have no idea what arm waving is and i wish you could call a spade a spade. I am not factually incorrect. Just because prices rose in 1997 or 1998 does not mean that Ireland was in a property bubble at the time for goodness sake. Do you understand the difference between house price inflation and an economic bubble? They often do not even arise from the same root cause, they are not the same thing.

I cannot see the relevance of your parable about the pouring water to your original erroneous statement that "property prices grew quite modestly in the 1990s, even the late 1990s".

The point was about rate. You brought up rate and failed to mention market volume and the detrimental effect a volume (or anticipated, or real cash flow arising from that volume) can have on an economy unable to cope, this goes to the very basis of a bubble and what it is.

I made the point that an economic bubble must be characterised by both a high rate of growth as well as a significant volume relative to the overall economy. In my analogy the cup is the irish economy and the property market and its cashflow are the capital inflow arising from the pint glass.

The rate at which this inflow occurs is significant, but in ignoring the fact that there will be significant spill even when the rate is slower tells us that volumes relative to GDP and the other models that I mentioned can be more useful in identifying a bubble than mere 'rate of growth. I mentioned rent: price ratio, you dismiss that. How can anyone dismiss that as an indicator of over reliance on an unsustainable property sector i.e. a bubble. From 2000 to 2006 Irish house prices doubled in relation to rent. These indicators are necessary and your suggestion that an upward graph = bubble is far too simplistic a conclusion to draw.

Ireland did not have a property bubble in 1996, values were modest throughout the 1990s, and a quickening rate of growth itself did not automatically put us in a bubble, you have to consider the entire economy. It really is that simple.

Scofflaw

I haven't argued with your conclusions - as you said, there's a lot of things you have to examine before you can decide whether a bubble is a bubble. I have merely pointed out a factual error.

House prices rose just as rapidly in the late Nineties as in the generally accepted bubble. I don't mind whether you argue that this was a bubble, or whether you argue that it was Irish house prices catching up with European norms - as long as you have your facts right, which you didn't.

regards,
Scofflaw

later12

Scofflaw wrote: »

I have merely pointed out a factual error.

House prices rose just as rapidly in the late Nineties as in the generally accepted bubble. I don't mind whether you argue that this was a bubble, or whether you argue that it was Irish house prices catching up with European norms - as long as you have your facts right, which you didn't.

This argument is going nowhere, I merely pointed out to a poster that there was no property bubble until the turn of the millenium, and that property values grew modestly up until that point. If you want to to take that to mean that they grew slowly, knock yourself out.

I haven't argued with your conclusions - as you said, there's a lot of things you have to examine before you can decide whether a bubble is a bubble.

Right. So if you're not arguing with the conclusion about a property bubble, why on earth did you post the post below?
because below, you seem to be of the opinion that a property bubble can be identified by comapring incomes to house prices, that there was a property bubble in 1996. Perhaps some clarification is needed.

http://www.boards.ie/vbulletin/showpost.php?p=70423781&postcount=33

Scofflaw wrote: »

later10 wrote:

It certainly would be pushing it to say that Ireland was experiencing a property bubble in 1996.

That might be the case - but to show that it's so, what you probably ought to look at is whether they rose faster than incomes, rather than inaccurately claiming the rate of rise was modest.

Unfortunately, that doesn't really back the case either:

http://dublinopinion.com/wp-content/...ices-wages.JPG

censuspro

Since this thread has been dragged completely off topic and until Europhiles can come up with an alternative to Ireland's corporate tax regime they really don't have an argument.

The benefits of Ireland's CT regime have been highlighted ad naseum. Where as the opposing argument that we should change our CT rate because we received a bail out has no basis nor is it in the terms of the actual bail out itself.