Corporate tax trauma

Dannyboy83

http://www.irishtimes.com/newspaper/frontpage/2011/0112/1224287330333.html
THE GOVERNMENT has told the European Commission that imminent moves to introduce pan-European rules on the taxation of business profits will seriously damage Ireland’s recovery prospects and threaten further budget cutbacks and tax increases.

The EU executive plans to publish draft laws in March to develop a common European formula for the calculation of corporation tax, measures the Government has vowed to oppose because they could dim the lustre of Ireland’s generous business tax regime.

In an escalation of its campaign against the initiative, the Department of Finance has warned in a private submission to taxation commissioner Algirdas Semeta that the measures would shrink the Irish economy, reduce employment and curtail foreign direct investment.

Furthermore, the Irish submission said the legislation had the potential to threaten hundreds of thousands of jobs throughout Europe and to shrink the EU economy generally.
...
...
The CCCTB policy would not harmonise corporate tax rates but would weaken tax competition by reallocating tax receipts to countries in which revenues are received. This would lessen scope to maximise the profits that companies record in Ireland, one of the key attractions of the present system, lessening the benefit the Government derives from its low 12.5 per cent corporate tax rate.


Seen by The Irish Times, the department’s 79-page paper states that all EU countries except France, Belgium and Spain would lose out if a mandatory or a voluntary CCCTB is introduced and suggested Ireland would rank among the biggest losers.

The Irish economy could contract by between 1.5 per cent and 2 per cent, employment could fall by some 1.5 per cent and foreign direct investment could fall by 5 per cent.

In addition to Ireland, other countries that would lose out in the initiative included Germany, Denmark and the Netherlands. In a mandatory CCCTB system, they would lose both corporate income tax revenue and employment.

OK, so it's not quite the same thing, but it looks like Ireland CRT glory days are behind us, one way or another, our competitors in Europe seem determined to put an end to it.

Wasn't Lenny saying that exports are going to get us out of this mess only a few days ago?

Then there's this little gem:
http://www.breakingnews.ie/ireland/lenihan-not-worried-about-potential-mortgage-meltdown-485618.html


The last 3 years have been bad, but 2011-2013 are going to be the really nasty ones imo.

Welease

Obviously raising Corp. tax isn't going to help.. but I have always been far more concerned on the focus on this as the primary reason for locating here to the detriment of all the other problems we should be fixing (education, costs, infrastructure)..

Sometimes I wonder if levelling the playing field (while painful) might actually force this country to get off it's arse and start to provide other incentives for longer term growth.

noodler

Can anyone explain to me exactly how the CCCTB works?

Dannyboy83

Welease wrote: »

Obviously raising Corp. tax isn't going to help.. but I have always been far more concerned on the focus on this as the primary reason for locating here to the detriment of all the other problems we should be fixing (education, costs, infrastructure)..

Sometimes I wonder if levelling the playing field (while painful) might actually force this country to get off it's arse and start to provide other incentives for longer term growth.

I agree with you to an extent, but that's assuming that we actually can fix them.

God forbid, if the lunatic dream about Irish being the primary language was realised, people wouldn't be able to emigrate.
That might fix a few problems but it would cause plenty more (and more immediate ones).
I see this in the same way tbh.

Even with the best of intentions, there are some ways where we simply can't compete with other countries who have a geographical advantage such as Germany or Poland, or who have industrial legacies such as Britain, France, Germany.

Taking this away from Ireland, feels a bit like taking a cane away from a blind kid and then telling him he is playing football, for his life, against all the 20/20 lads. (and giving them a 21-0 lead to boot:D)

Welease

Dannyboy83 wrote: »

Even with the best of intentions, there are some ways where we simply can't compete with other countries who have a geographical advantage such as Germany or Poland, or who have industrial legacies such as Britain, France, Germany.

Well if you look at our supposed "knowledge economy".. India and China dont have a geographical advantage or an industrial legacy in that space (especially in high tech due to its relative recent existance).. They don't even have great infrastructure in many cases..

But they are booming economies..

Our barriers are not as bad as we sometimes makes out.. but when we demand to be the highest paid in Europe and offer poor service then we are not really doing ourselves many favours

Dannyboy83

Welease wrote: »

Our barriers are not as bad as we sometimes makes out.. but when we demand to be the highest paid in Europe and offer poor service then we are not really doing ourselves many favours

Agree with that.
In regard to the knowledge economy, I was recently comparing Irish IT salaries to UK, France, Germany etc.
Based on what I've seen when comparing to other countries in Europe, Irish IT workers are among the lower paid, especially in the private sector, and usually have a pretty good reputation.

I agree that IT is the exception to the rule in Ireland tho....Funny how it's the one industry that has largely bucked the implosion trend in Ireland!;)

Pete_Cavan

Dont worry, if Germany are set to lose out you can be sure this will not happen. After all, it is the Germans who are funding the bailouts that are keeping the EU show on the road. The German people were not happy with the money they have committed to other countries and many wanted to leave the EU. They stayed because it still suits them economically to do so. A measure like this which would directly damage their economy for the sake of the French and Belgians would not go down well.

Scofflaw

noodler wrote: »

Can anyone explain to me exactly how the CCCTB works?

When you're looking at how much tax you have to pay, it's not simply about the rate, it's about how much of your income is actually liable for the tax. Say a company has the choice between two jurisdictions, one of which classifies €1bn of its earnings as taxable profit at 20% CT rate, while the other classifies €2bn of its earnings as profit at 12.5% CT rate. In the former it would pay €200m in tax, in the latter €250m, even though the second jurisdiction has a lower headline rate of corporation tax.

The CCCTB is, at heart, a common tax base - that is, that all countries involved in the scheme should calculate the amounts liable for corporation tax the same way. It doesn't change the rates charged on that amount, which the EU has no competence in.

In brief:

The idea is that instead of separate accounting in each state of operation, firms can have consolidated accounting, and profits are taxed in each state where the firm has a nexus, i.e. either sales or workers or physical capital.

Source

When one considers multinational companies, the basic question is how their profits should be allocated between the multiple countries they trade in. You would think that if a US company has an operation in Ireland, but makes all its sales in Germany, it would be taxed on its profits in Germany or the US. In fact, the use of 'transfer pricing', where the US company licenses its intellectual property (IP) to the Irish operation, and the company's Irish operation then charges royalty payments for the use of that IP in the German operation sales of the company's products, allows most of the profits to be earned in Ireland instead. The Irish operation is effectively just a shell that holds the intellectual property and charges royalties in order to move the profits out of Germany and avoid the US.

Elements of Ireland's intellectual property regime and tax structuring - legislation for holding companies, taxation of patent royalties, double taxation agreements and the (US) legislation for cost sharing arrangements - make Ireland particularly attractive as a location for IP holding companies.

There are further loopholes in the Irish tax system that allows companies with sufficient money to reduce their tax burden yet further - for Google, the use of the 'Double Irish' structure is part of what allows them an effective corporation tax rate of 2.4% (also the even more attractive sounding 'Dutch Sandwich'). That's nevertheless attractive to Ireland, because, while we don't get a lot of tax on each euro of Google's profits, Google makes a heck of a lot of profit, and likes to channel a lot of it through Ireland.

The details of how an EU CCCTB would operate is still uncertain, but some of the options are particularly scary for Ireland - apportionment of taxable profits within the EU by sales or by population, for example, which would remove most of the ability for companies to shift profits into lower tax jurisdictions (us). Since Ireland's 'business model' currently relies on shell companies that do exactly that, you can see why Ireland opposes CCCTB.

The actual probable proposal is, naturally enough (this being an EU proposal), for a ferociously complex formula to determine how a company's profits should be allocated between the countries - the current working group proposal is for something like this:

The first element is the share of sales which a company makes in a member state. Revenues are destination based, cover only core business and only if the firm has an establishment in the country. The second element is the payroll paid to all workers, excluding outsourcing of jobs. This weight is sourced based. The third element is the number of full-time equivalent employees. Finally, immobile, material property is used to capture physical capital. This last weight is once again source based.

A little long, but in summary, the CCCTB is a way of apportioning profits between the countries a multinational trades in according to a formula that weights the activities of the multinational in the different countries, rather than the company arranging its internal balance of payments to ensure that tax is paid, to the extent that it is paid, within the lowest tax jurisdiction.

The proposed CCCTB is being touted as initially voluntary, which makes one wonder why any company would volunteer to use it. The answer is that for companies whose trade is such that they can't benefit from gaming the system, it's a lot simpler in theory, since it makes compliance with multiple tax regimes unnecessary - which applies to most smaller companies that want to trade internationally within the EU. Companies that do benefit from the current setup because they're able to shift money around through intellectual property payments, on the other hand, might not find the system so much to their liking - and countries that benefit from those companies' ability to do so don't like it either, because the voluntary might become compulsory quickly enough, and even without that, compliance costs may make it an attractive regime for those who currently have no other option:

More than one fifth (21 per cent) of tax directors from European based multinational companies, who were questioned at the annual PricewaterhouseCoopers Tax Symposium, also believed that CCCTB would reduce their effective tax rate (ETR), up five percentage points on a similar 2006 poll in which only 16 per cent of those polled envisaged this.

While 24 per cent were convinced a CCCTB would increase their ETR, the trend continued to be one of confidence. Last year 43 per cent of respondents believed that the impact would be negative and increase ETR.

Advantages of a CCCTB Directive include automatic cross-border loss offset, the potential to reduce compliance costs of perhaps up to 20 or so EU Member States’ tax systems, reduce transfer pricing issues and simplify EU corporate structuring.

Ireland's 'business model', of course, relies on attracting multinational companies here in order to funnel their profits preferentially through our low tax regime. We are, perhaps unsurprisingly, one of the CCCTB's most dogged opponents.

cordially,
Scofflaw

feicim

Dannyboy83 wrote: »

God forbid, if the lunatic dream about Irish being the primary language was realised, people wouldn't be able to emigrate.

Whooa, I had to flag this one..


Do you think that:

1. Non-native English speakers can't / don't emigrate to an English speaking country?

2. Irish people are too thick to learn how to speak two languages?

Would you care to qualify your original statement?


PS: Back on topic... I thought that the lisbon treaty had a special paragraph to give legal guarantee to this.... don't tell our government lied to us

Commissioner Rehn made comments this morning in relation to taxation levels generally in Ireland.

The Minister has acknowledged that taxation will form part of the solution to our fiscal problems and stabilising the deficit.

With regards the corporation tax rate, the Government has always made it clear that the corporation tax rate will remain at 12 ½ % as set out in the Programme for Government. This is still the case. This commitment is protected, in an EU context, by the principle of unanimity in taxation matters. That was further enhanced by the insertion of a legal guarantee in the Lisbon Treaty. The 12 ½ % corporation rate is a cornerstone of the Irish industrial policy.source

Scofflaw

feicim wrote: »

Whooa, I had to flag this one..


Do you think that:

1. Non-native English speakers can't / don't emigrate?

2. Irish people are too thick to learn how to speak two languages?

Would you care to qualify your original statement?

Not really on-topic.

moderately,
Scofflaw

zig

not really the point of the thread but I figured it didnt warrant a thread of its own.
This kind of talk really bothers me, because it wasnt exactly us screaming and crying for help, IMf/EU invited themselves in and put pressure on Fianna Fail to take this bailout, and now Sarkozy as predictable as ever having a nice moan about it.

http://www.rte.ie/news/2011/0113/bailout-business.html

Ireland should not be allowed to benefit from European Union aid while maintaining its low company taxes, French President Nicolas Sarkozy said today.
'I deeply respect the independence of our Irish friends and we have done everything to help them. But they cannot continue to ask us to come and help them while keeping a tax on company profits that is half what other countries have,' he said.
Ireland requested an €85 billion bailout from the EU authorities and the International Monetary Fund late last year.
Our low corporation tax rates - at 12.5% - are often criticised by other governments in the euro zone.
The French President also said that the euro is still too strong against the dollar and the exchange rate is hurting French and European exports.

pocketvenus

zig wrote: »

not really the point of the thread but I figured it didnt warrant a thread of its own.
This kind of talk really bothers me, because it wasnt exactly us screaming and crying for help, IMf/EU invited themselves in and put pressure on Fianna Fail to take this bailout, and now Sarkozy as predictable as ever having a nice moan about it.

http://www.rte.ie/news/2011/0113/bailout-business.html

I am not surprised at this France and Germany want to run Europe to suit them and no one else. Sure this was why intrest rate were kept so low over the past numbers of years so it would prop up and help the German economy.

I would be seriously worried now about this talk and I have a feeling we will eventually be forced to increase the rate and all this talk about it being protcted and us have a veto as per Lisbon Treaty is bull.
We believe what Europe says - this is the organisation who told us that the LT would not go ahead without all countries accepting it and that our democratic right to vote NO would be adheared to. Then they told us we would have to keep voting until we got it right.

I am not anti Europe but if this crap continues lets get together with Portugal, Spain etc and let the Euro crash. Why should France and Germany dicate to us what why to run the country just to suit their needs.

zig

pocketvenus wrote: »

I am not surprised at this France and Germany want to run Europe to suit them and no one else. Sure this was why intrest rate were kept so low over the past numbers of years so it would prop up and help the German economy.

I would be seriously worried now about this talk and I have a feeling we will eventually be forced to increase the rate and all this talk about it being protcted and us have a veto as per Lisbon Treaty is bull.

To be fair though, the Lisbon treaty is irrelevant, its as simple as this, they cant make us bring it up,i.e. they cant use the lisbon treaty or any other treaty for it be brought up by law.
However I wouldnt be surprised if it got to a point where they'd make us 'an offer we can't refuse'.What that would be, I dont know, as the bailout package has already been written up and signed so they cant use that against us so im guessing thats why this CCCTB system has relevance.

Scofflaw

zig wrote: »

To be fair though, the Lisbon treaty is irrelevant, its as simple as this, they cant make us bring it up,i.e. they cant use the lisbon treaty or any other treaty for it be brought up by law.

They can't really do it through the EU at all, but they can certainly pressure us to do it. No doubt whatever government actually chooses to do it will, like Fianna Fáil over the bailout, claim simultaneously to have resisted European pressure to do it, and for it to have been Europe's fault we had to do it.

zig wrote: »

However I wouldnt be surprised if it got to a point where they'd make us 'an offer we can't refuse'.What that would be, I dont know, as the bailout package has already been written up and signed so they cant use that against us so im guessing thats why this CCCTB system has relevance.

CCCTB has been approaching for a long, long time - it was originally proposed in 1962. Under any normal circumstances - that is, if your economy isn't built around providing a base for multinationals to shelter their profits in - any taxpayer should be in favour of it, since it helps ensure that profits are taxed where companies are actually operating, and it's of real benefit to companies where the costs of compliance with multiple tax regimes and the costs of intra-company transfer accounting outweigh the benefits of tax avoidance. In a sense, a European CCCTB deglobalises and renationalises multinational revenues.

Currently, companies operating in multiple member states have no option but compliance with all the different tax regimes in those states, whatever the costs of that may be, so they might as well go the whole hog and try to set up a structure that drains their profits through Ireland. We don't want large multinational companies to have the option of making a single consolidated tax return, so our opposition is based on exactly the advantages to companies that CCCTB offers, which are:

Fragmentation remains the rule and companies still face 27 different systems for calculating their tax base when they operate cross-border within the EU.

This means high compliance costs, heavy administration and complex re-adjustments for enterprises operating in more than one member state. It also means a high level of uncertainty. National rules on company taxation evolve and change over time, in a way that companies in that country manage to adapt to. However, when faced with twenty seven systems evolving at different paces and in different directions, companies are being forced to adapt and re-align themselves to new rules on an almost constant basis. This continual change in national tax rules can also lead to overlap in their application, resulting in double taxation. High costs, high complexity and high levels of uncertainty are not the ingredients for a healthy business environment. As the EU works towards economic recovery and growth, we need to do everything possible to facilitate business and encourage economic activity. The CCCTB is clearly going to be a crucial step in this process.

So what exactly would a Common Consolidated Corporate Tax Base offer? The CCCTB would allow companies or groups of companies active in more than one EU member state to file a consolidated tax return with the tax authorities of their ‘principal’ member state for the whole of their activity in the EU. It would include the consolidation of profits and losses at EU level in order to fully take into account the cross-border activities of the business.

Ireland relies on the fact that the continually changing mosaic of member state tax rules generates double taxation, high costs, high complexity and high uncertainty. We're likely to lose out on corporation tax receipts under CCCTB not because "we have a small population" - no current CCCTB proposal weights the apportionment of profit by population (a line often used by opponents) - but because Ireland is full of shell companies and name-plate operations with no actual staff. The sort of formulas that are being proposed, then, which count in revenues earned, payroll, employees, and physical capital, would mean Ireland got a very small share of any profits to tax when it comes to some of the shell companies based here.

You can see from that why CCCTB is considered a much more serious threat than a mere raising of our CT rate.

cordially,
Scofflaw

Amhran Nua

France has been running a deficit for 35 years, I've no idea where Sarkozy gets the idea he can lecture us on fiscal austerity. Next up on the harmonisation train, retirement ages.

Nody

Amhran Nua wrote: »

France has been running a deficit for 35 years, I've no idea where Sarkozy gets the idea he can lecture us on fiscal austerity. Next up on the harmonisation train, retirement ages.

Why are you surprised? Look at how he's been behaving for his duration in power and on meetings; he thinks he's a big and important when in reality he's neither...

swampgas

Scofflaw wrote: »

Ireland's 'business model', of course, relies on attracting multinational companies here in order to funnel their profits preferentially through our low tax regime. We are, perhaps unsurprisingly, one of the CCCTB's most dogged opponents.

So in a nutshell, Ireland makes a lot of money by undercutting its European neighbours and operating as a quasi-tax shelter for big MNCs.

Obviously the rest of the EU is entitled to want to change this - if any other country were doing the same instead of us, we wouldn't be too happy about it either.

Sooner or later, we will be either forced to cooperate and adopt the CCCTB (regardless of any guarantees), or some other Eurozone country will copy our example and beat us at our own game.

Surely the pragmatic approach is to hang onto this rather unethical advantage as long as we can, while working really hard in the background to get the country to a position where we could still thrive without it?

The country should have a strategy for eventual adoption of the CCCTB, in such as way as to protect the long term national interest.

IMO, if it is truly the case that Ireland cannot thrive inside the CCCTB or some similar tax structure then we really are living on borrowed time.

Scofflaw

swampgas wrote: »

So in a nutshell, Ireland makes a lot of money by undercutting its European neighbours and operating as a quasi-tax shelter for big MNCs.

That's why we appear in lists of world tax havens - admittedly as a 'semi tax haven':

A recent report has found that Ireland is the most profitable country in the world for U.S. corporations.

The report, which was recently published in the U.S. tax journal Tax Notes, found that profits made by U.S. companies in Ireland doubled from 1999 to 2002, while profits in the rest of Europe plunged. While Luxembourg showed greater profitability rates for U.S. corporations, Ireland has a much larger "real economy" and produced the greatest profitability.

The report found a huge shift in the movement of capital towards tax havens.
" In low-tax Ireland, for instance, profits of subsidiaries of U.S. multinationals have doubled in four years, from $13.4 billion to $26.8 billion. Profits from operations of U.S. multinationals in no-tax Bermuda have tripled, from $8.5 billion to $25.2 billion. Not surprisingly, those two tax havens rank as the number one and number two locations in terms of profitability for U.S. corporations operating abroad - surpassing long-time leading investment partners like the United Kingdom," the report stated.

The report, written by Martin Sullivan, a former U.S. Treasury Department international taxation specialist, found that U.S. multinationals made $2.01 profit in Ireland in 2001 for every $1 they made in 1999.

In Britain, U.S. multinational profits dropped sharply to 67 U.S. cents in 2002 for every $1 profit made in 1999. In Germany, profits fell even more, slipping to 46 cents in 2002 for every $1 made in 1999.

While U.S. corporations in Ireland were involved in real productivity and the country was only a "semi tax haven", locations such as Bermuda were found to have returns that bore little relation to productivity on the island.

Us...and Bermuda. But Bermuda's worse, obviously.

swampgas wrote: »

Obviously the rest of the EU is entitled to want to change this - if any other country were doing the same instead of us, we wouldn't be too happy about it either.

Sooner or later, we will be either forced to cooperate and adopt the CCCTB (regardless of any guarantees), or some other Eurozone country will copy our example and beat us at our own game.

Surely the pragmatic approach is to hang onto this rather unethical advantage as long as we can, while working really hard in the background to get the country to a position where we could still thrive without it?

The country should have a strategy for eventual adoption of the CCCTB, in such as way as to protect the long term national interest.

IMO, if it is truly the case that Ireland cannot thrive inside the CCCTB or some similar tax structure then we really are living on borrowed time.

There's the rub. If the rest of Europe, who derive most of their tax revenue as normal 'productive' economies, wants CCCTB, then it will eventually happen. It probably won't happen EU-wide, because we do have a veto there, but it will probably happen in an enhanced cooperation group if we keep blocking it - and it's quite possible that for some companies, it may be worth relocating inside the CCCTB area. The British keep telling their companies that they need to assume CCCTB will happen.

And you're right - if we can't operate a normal productive economy by the time it happens, then we're screwed. Again, it seems that our government has been ignoring this and concentrating on FDI as our only real industrial policy, presumably hoping that their dogged resistance to CCCTB will prevent it ever happening. Perhaps hoping for some kind of 'soft landing', or maybe just concentrating on getting through the next election.

We need to change course, because the iceberg is on the horizon.

cordially,
Scofflaw

Nody

Scofflaw wrote: »

We need to change course, because the iceberg is on the horizon.

Sir, I tell you again, the Titanic is unsinkable; unsinkable I tell you!