Finally Time To raise Corporation Tax!

Degsy

http://www.belfasttelegraph.co.uk/business/business-news/corporation-tax-rise-wont-hurt-republic-15122200.html

The Republic of Ireland could raise its 12.5% corporation tax rate by a "moderate" amount and not hurt multinational investment, the largest bank in the US has claimed.
If the Republic raised the rate by a small amount it could also lead to a reduction in interest on the country's €85bn bailout package, Bank of America's Merrill Lynch claimed in a note.

The bank, the result of a merger at the height of the financial crisis, said simply saying multinational investment would flee from the Republic because of any change was "premature".

"In the very short run, a moderate increase in the corporate tax rate can have the advantage of increasing tax revenue,'' its analysts said.

"In 2010, revenue from corporate taxation was €4.2bn (2.6% of GDP). An increase in the corporate tax rate from 12.5% to 20% (still below the average of the Eurozone top statutory rate equal to 26%) would allow the Irish government to raise an additional €2.5bn in revenue,'' it explained.

The bank admitted its analysis showed more negative results when assessed over a longer period. But it maintained that there were a host of reasons for multinationals to locate in overseas locations, not just tax.

"Firms care about the entire tax burden, not only the corporate tax rate.

"Ireland's implicit tax rates on corporate and labour income (the tax rate that firms end up paying after accounting for tax credits and deductions) are among the lowest in Europe and firms pay very low social security contributions,'' it pointed out.

"A modest increase in the corporate tax rate would not erode Ireland's favourable tax environment. Second, a friendly business environment and a well-functioning judicial system count too - the cost of doing business is among the lowest in the entire world."

Merill Lynch's analysis also said the Republic's labour market was "far more competitive" than many of its neighbours, with wages falling "substantially" from 2008 to 2010.

"Also, the level of human capital and skills offered by the labour force in a particular country are not always easy to find in another,'' the bank added.

Falling property prices were another boon, as firms would find it "relatively cheap" to move to a new facility in the Republic.

The Republic's low rate has been cited as a factor in the one-time Celtic Tiger economy and has also been cited in the long-running argument in favour of lowering Northern Ireland's corporation tax rate.

Former Taoiseach John Bruton said in recent days that there would be "no change whatsoever" in the country's corporate tax rate. The battle on the Republic's tax rate was now "won" and "over", he said.

He added that the Republic's low corporate tax rate was older than French President Nicolas Sarkozy himself and was an issue that the state had pursued to attract Foreign Direct Investment since 1956 - long before it joined the European Union.

"I am absolutely sure we will get through this with not only our corporation tax rate untouched but also our system of corporation tax unchanged," he said.



Read more: http://www.belfasttelegraph.co.uk/business/business-news/corporation-tax-rise-wont-hurt-republic-15122200.html#ixzz1IC4eDtR8

Why should the current rate be considered sacred by the Govt when all other avenues of taxation have been looked at including further shafting PAYE workers?

The country needs tax revenue and this is somewhere they can obtain it.

Mongarra

I presume you mean 'sacred'.

The main reason is that the low rate results in multi-national companies seriously considering Ireland as a base and the more of these we have the more jobs will be created.

Degsy

Mongarra wrote: »

I presume you mean 'sacred'.

The main reason is that the low rate results in multi-national companies seriously considering Ireland as a base and the more of these we have the more jobs will be created.

They're currently emplying only 7% of the workforce,have no alliegence to this or any other country and are not what we should be pegging the future of the country on in the long term.

Besides a modest increase wont hurt them,they can always lower their starting salries to recoup it.

Mongarra

Mongarra wrote: »

I presume you mean 'sacred'.

The main reason is that the low rate results in multi-national companies seriously considering Ireland as a base and the more of these we have the more jobs will be created.

Yes, we don't necessarily have a "high knowledge economy" these days so frankly I think a lot of what we have going for us is the corp tax rate. Interesting that the EU and now a US bank all have a pain in their necks trying to get us to raise it. I think that raising it now in the situation we are in is too risky and for too short term a gain. We won't have a higher tax revenue if the companies have been scared off.

Tipp Man

Since when is a 60% increase in the rate of tax a modest increase??

RichardAnd

Degsy wrote: »

They're currently emplying only 7% of the workforce,have no alliegence to this or any other country and are not what we should be pegging the future of the country on in the long term.

Besides a modest increase wont hurt them,they can always lower their starting salries to recoup it.

Which will result in lower income tax returns. Do you see the problem?

Any thread that ends with a "!" is off to a bad start...

dlofnep

Our tax rate is fine - we don't want to see job flight, especially under the current circumstances. With every job we lose, we lose tax and increase the welfare burden. We need to keep people in work.

It could be something worth discussing 10 years down the line when the economy is stable. But right now, it would be a bad move IMO. Besides, isn't our effective tax rates similar to many EU nations?

Welease

This would be the same Merill Lynch who in 2008 said the Irish banks were profitable and fully capitalised?

http://www.guardian.co.uk/business/ireland-business-blog-with-lisa-ocarroll/2011/feb/02/ireland-merrill-lynch-research-note-irish-banks

Chucky the tree

Short term gain for long term loss? Seems pretty stupid.

Euroland

The opposite, I would suggest reducing the Corporation tax down to 8-10%

beeftotheheels

Euroland wrote: »

The opposite, I would suggest reducing the Corporation tax down to 8-10%

Yes, because the EU/ IMF will let us do that!

Lets fight to mantain the rates alone at 12.5% and 25% and try to educate those who wish to paint us as a tax haven to the existence of our 25% rate.

dlofnep

Euroland wrote: »

The opposite, I would suggest reducing the Corporation tax down to 8-10%

Equally as reckless.

CrackisWhack

dlofnep wrote: »

Equally as reckless.

Why?

ei.sdraob

CrackisWhack wrote: »

Why?

Why businesses need to be punished for daring to be succesful and stay in business and (gasp) employ people.

johnmcdnl

Tipp Man wrote: »

Since when is a 60% increase in the rate of tax a modest increase??

bahhh humbug - we're still going to be way below most other countries and get ourselves an extra few billion in revenue per year... it's only a 60% increase because we were so low to begin with... if the multinationals decide to up ships and leave over it it's still gonna cost them more in the long run because we have such a low level of corporation tax even after the increase

CrackisWhack

ei.sdraob wrote: »

Why businesses need to be punished for daring to be succesful and stay in business and (gasp) employ people.

I was asking why a reduction in corporation tax would be reckless, surely the priority has to be to get people off social welfare and in work. Lowering corporation tax could bring in more jobs?

ei.sdraob

johnmcdnl wrote: »

bahhh humbug - we're still going to be way below most other countries and get ourselves an extra few billion in revenue per year... it's only a 60% increase because we were so low to begin with... if the multinationals decide to up ships and leave over it it's still gonna cost them more in the long run because we have such a low level of corporation tax even after the increase

There are already other states in EU with lower rates

CrackisWhack wrote: »

I was asking why a reduction in corporation tax would be reckless, surely the priority has to be to get people off social welfare and in work. Lowering corporation tax could bring in more jobs?

I should have used sarcasm tags

beeftotheheels

johnmcdnl wrote: »

bahhh humbug - we're still going to be way below most other countries and get ourselves an extra few billion in revenue per year... it's only a 60% increase because we were so low to begin with... if the multinationals decide to up ships and leave over it it's still gonna cost them more in the long run because we have such a low level of corporation tax even after the increase

No it is not. 20% is pretty competitive by EU norms as a headline rate, our effective rate would be way higher than the norm since we have very restrictive rules on interest deductibility etc so our tax base is pretty broad compared to many EU jurisdictions. We have a broad base and low rate, others have a higher rate but narrower base.

Worse though, is the fact that Switzerland can often beat us on headline rate, very often we are the final two in the beauty pageant when a US MNC decides where to locate their European HQ. Any negative movement on rate from us could lead to companies choosing Switzerland over Ireland.

I'd take the Merrill's survey with a grain of salt in that yes, our existing MNCs with a "Double Irish" structure might stay, but we'd lose any beauty pageant that came up in the coming years, we wouldn't even make it to the final.

View

beeftotheheels wrote: »

Lets fight to mantain the rates alone at 12.5% and 25% and try to educate those who wish to paint us as a tax haven to the existence of our 25% rate.

Wouldn't we be better off publicising our effective CT rate of 2.5% that companies such as Google etc enjoy?

Bermuda would certainly appreciate any additional CT take on their end of such legal tax avoidances schemes that our Irish companies can avail of - after all, if we had that CT they get from us, we'd only do stupid things like spend it...

CalmDown...

First of all correct me if I'm wrong, just repeating what my financial economics lecturer said....

Basically what he said is that most other european countries have a higher tax rate (in the 20s) but it is possible to reduce this to an effective rate of around 12% by allowing for deductable depreciating assets (i.e. assets losing value over time). Thus Ireland tends to attract a lot of companies from the financial sector as they don't really have assets that depreciate over time, eg manufactuing equipment, and hence our financial sector basically got too big for us to handle. In this scenario an increase would be fine as long as it remained below the effective rate of other countries??? It was also suggested that increasing this would lower our interest rate so less total debt... might be worth doing some calculations to estimate what the savings here V's cost of possibly losing some companies would be

By the way this was said in conversation not in lectures

K-9

They account for something like 90% of our exports and therein lies the problem.

Personally I can't see why a 1% levy is that bad as a one off measure but the 12.5% is a religion here, everybody sees it as non negotiable and SF see it as a sovereign issue so forget about it.

beeftotheheels

View wrote: »

Wouldn't we be better off publicising our effective CT rate of 2.5% that companies such as Google etc enjoy?

Because The Netherlands would not run a tourism campaign in the US advertising their coffee shops and red light district. Every one who needs to know about them knows about them, if you advertise them too brazenly then there are those who will feel morally obliged to campaign against them! Same is true for tax planning.