Ireland's corporation tax is anti-competitive, so what?

Bottle_of_Smoke

Sarkozy-Merkel and the eurocrats in general keep harping on about our corporation tax being anti-competitive, why is this actually relevant?

Ireland doesn't have advantages other nations have. France has weather therefore much more tourism. Same for Spain, Italy, Greece etc etc... Germany has a huge population

Other small countries do this kind thing too. Look at Luxembourg/Isle of Mann etc

Ireland is a tiny island nation which adds costs european nations don't have to face. Weather is sh*t. Only existed as an independent state for 90 or so years. No real manufacturing industry. Of course we have to be anti-competitive in some areas.

If it is really so uncompetitive its a bit strange altogether that the country is in such an economic mess. At the end of the day there´s nothing stopping the French/Germans reducing theirs

Solair

There are lots of other things in Europe which are anticompeditive and distorting.

For example, many countries pay all sorts of grants to various sectors of the economy e.g. tourism. There are all kinds of tax breaks that you could look at.

I mean, we could look at France or Germany and point at loads of things that are undermining our position. We wouldn't have to look very far!

Also, you would have to chuck the UK, Denmark, Sweden and any non-Eurozone country out of the single market. The fact that they can devalue their currencies is a MASSIVE distortion, far more serious than corporation tax.

This is nothing more than a stupid sideshow in my opinion.

usernamegoes

It seems to me to be the definition of competition. Others can compete with our rate if they wish.

Bucklesman

usernamegoes wrote: »

It seems to me to be the definition of competition. Others can compete with our rate if they wish.

That's the thing though, if they decide to compete with us, we have nothing left. Cost just isn't something we can beat other countries on.

later12

First of all, Ireland's tax rate is not anti-competitive, and I'm not sure that Merkel or Sarkozy have suggested that it is. Maybe you are confusing it with the competitiveness pact

http://www.europeanvoice.com/article/2011/february/merkel-sarkozy-present-competitiveness-pact/70165.aspx

“We are prepared to take further resolute steps: this pact aims at a long-lasting increase of competitiveness of the sates involved, in order to achieve a stronger economic convergence.

This is to happen on the basis of concrete commitments - more ambitious and binding ones than those already decided by the EU27. We should orient ourselves according to the respective best practice.
We commit ourselves to three quantifiable indicators which are decisive indicators for our national economies' competitiveness:
1. Indicator to measure price competitiveness (eg, stability of real labour cost, realigning labour cost according to development of productivity);
2. Stability of public finance, from a comprehensive point of view (assessment measure still to fixed, under consideration of explicit and implicit public debt);
3. Minimum rate for investments in research, development, education and infrastructure of x% of gross domestic product (value still to be fixed).
We commit ourselves to let ourselves be evaluated according to these indicators, on the basis of a European Commission report (if necessary with the support of the European Central Bank or the European Systemic Risk Board).
We agree as a first step a programme of six points for more competitiveness of which the measures will have to be implemented nationally in a period of 12 months:
1. Abolition of wage/salary indexation systems;
2. Mutual recognition agreement on education diplomas and vocational qualifications for the promotion of mobility of workers in Europe;
3. Foreseeing the creation of a common assessment basis for corporate income tax;
4. Adjustment of the pension system to the demographic development (ie, average age of retirement);
5. Obligation for all member states to inscribe the debt alert mechanism into their respective constitutions;
6. Establishment of a national crisis management regime for banks.
[...]"

What they are suggesting is something which has been discussed at length on here, which is, basically, the option of some corporations in choosing how their tax is assessed - not the rate at which it is charged. Europe literally cannot change the Irish rate.

beeftotheheels

Bottle_of_Smoke wrote: »

Sarkozy-Merkel and the eurocrats in general keep harping on about our corporation tax being anti-competitive, why is this actually relevant?

If it is really so uncompetitive its a bit strange altogether that the country is in such an economic mess. At the end of the day there´s nothing stopping the French/Germans reducing theirs

Ireland's tax rate is not uncompetitive, it is competitive and that is their issue with it.:)

But you're right to take issue with their approach, however, I feel we are not entirely helping ourselves here with getting our message across.

The amount you collect from Corporation Tax is governed by two distinct elements. Your tax rate i.e. the rate you tax income at, and your tax base i.e. what you view as being income which you can tax.

Our traditional approach is to have a very broad tax base, and a low tax rate. Lets take the example of R&D relief. An Irish company and a UK company both spend 100 on R&D in year one. They both get a deduction for 100. In year two they both spend 120 on R&D. The UK company gets a deduction for 120, the Irish company gets a deduction for 20 (the increase in R&D spend). So, that leaves us more profit to tax than the UK has left itself.

To my mind, we are engaging in open tax competition which is fair. Other jurisdictions engage in more covert tax competition by maintaining high rates yet manipulating down their tax base. This is where the coverage about France's effective tax rate came into play.

If we were to join the CCCTB, we would be justified for criticizing it for being too narrow, for leaving too many profits out of the tax net. If we did this, people might understand that comparing Ireland's 12.5% with France's 33% is like comparing apples with oranges.

But we won't engage in the CCCTB, so the German taxpayer thinks we are scared of being made to tax profits, when in fact we tax more profits than most of our counterparts in a comparable situation.

We won't publicly tell people how broad our base is in case it scares off FDI, but most US FDI don't mind, 12.5% is a hell of a lot more competitive than they'd get back home, and a double Irish structure sweetens the deal.

So we're left with the position that open and honest tax rate competition makes us the bad guy, and those who engage in disguised tax base competition get to claim the moral high ground.

I agree that it is wrong, but the Government seem to be too scared to actually explain it like it is. They even seem to be too scared to mention that we have a 25% CT rate applicable to all passive income and gains.

I think they need to start speaking out and explaining this, I just doubt that they will.

Pride Fighter

Quite simply Merkel and Sarko dont give a monkeys about Ireland. They are hypocrites too, the effective Irish corpo tax is 11.9% close to the 12.5 rate we give. France's effective rate is 8.2%, far lower than ours. Germany's is higher, but they have a massive manufacturing base.

When the IMF go into a country they absolute decimate the place. I never thought our European 'allies' would want to do the same thing.

greendom

I wouldn't worry about it too much Sarkozy and Merkel are desperately holding onto power in their respective countries and their utterances are playing to the home crowd; they have no real interest in the corporate tax rate in Ireland. It's pretty much an irrelevance really

goose2005

If you were working for €12 an hour and someone came in and offered to do your job for €3, would you be happy?

beeftotheheels

goose2005 wrote: »

If you were working for €12 an hour and someone came in and offered to do your job for €3, would you be happy?

That's not a great analogy albeit it is the one understood by the French and German electorate.

In order to integrate the tax base issue in, you would need to have the person on €12 working for 15 hours a week, while the person on €3 an hour will only work at that rate if employed for a 40 hour week.

They're still cheaper, but they're not a quarter of the price since they will work longer hours. €180 per week v €120.

whiteonion

Ireland is in desperate need of income, ordinary people will get less social benefits and higher taxes. It's not unreasonable to ask corporations to share this burden.

Corporation tax should be raised to 25% in line with normal countries.

beeftotheheels

whiteonion wrote: »

Ireland is in desperate need of income, ordinary people will get less social benefits and higher taxes. It's not unreasonable to ask corporations to share this burden.

Corporation tax should be raised to 25% in line with normal countries.

We have a 25% corporation tax rate applicable to passive income and gains. However, to increase the 12.5% rate applicable to active trading profits would discourage FDI in the manufacturing sector.

Scofflaw

Pride Fighter wrote: »

Quite simply Merkel and Sarko dont give a monkeys about Ireland. They are hypocrites too, the effective Irish corpo tax is 11.9% close to the 12.5 rate we give. France's effective rate is 8.2%, far lower than ours. Germany's is higher, but they have a massive manufacturing base.

When the IMF go into a country they absolute decimate the place. I never thought our European 'allies' would want to do the same thing.

It should perhaps be pointed out that those figures are rather specifically for a specific and simplified set of hypothetical facts: namely, a theoreticl new domestic small or medium enterprise that manufactures and sells ceramic flower pots.

A rather broader measurement of typical effective tax rates for SMEs produces rather different figures - 10.9% for Ireland, and 27.5% for France in 2010. A survey of tax rates actually paid in 2007 gives figures of 15.58% for Ireland, and 31.79% for France.

So unless industry in France and Ireland consists mainly of ceramic flower pot manufacturers, France does have a higher rate - and people may swap back to using the argument that the French are greedy because they won't lower their rate, rather than hypocrites because they have a lower rate.

cordially,
Scofflaw

alan85

Isn't it anti-competitive in a way that their multiples enter the Irish market and bulk buy for both Irish & foreign markets and take any competition that may have been here out because they can buy at lower prices/demand lower prices? Take for instance Tesco Express opening down the road beside the locally owned Centra. Lidl, Aldi etc. Their huge profits go back to Britain/Germany etc...

How about their mulitples dictating what the farmer/grower gets?

Europe: ***k off! They're starting to piss me off. Didn't I vote No the first time in Lisbon and only Yes second time round because you promised soverign tax policy & retainment of commissioner?

Yes, ***k off!

slimjimmc

alan85 wrote: »

Isn't it anti-competitive in a way that their multiples enter the Irish market and bulk buy for both Irish & foreign markets and take any competition that may have been here out because they can buy at lower prices/demand lower prices? Take for instance Tesco Express opening down the road beside the locally owned Centra. Lidl, Aldi etc. Their huge profits go back to Britain/Germany etc...

How about their mulitples dictating what the farmer/grower gets?

Europe: ***k off! They're starting to piss me off. Didn't I vote No the first time in Lisbon and only Yes second time round because you promised soverign tax policy & retainment of commissioner?

Yes, ***k off!

I don't see what any of that has got to do with corporation tax, it seems more to do with a corporation's size and it's ability to grab market share. A higher rate of tax won't stop multiples dictating what the farmer/grower gets.

greendom

alan85 wrote: »

Isn't it anti-competitive in a way that their multiples enter the Irish market and bulk buy for both Irish & foreign markets and take any competition that may have been here out because they can buy at lower prices/demand lower prices? Take for instance Tesco Express opening down the road beside the locally owned Centra. Lidl, Aldi etc. Their huge profits go back to Britain/Germany etc...

How about their mulitples dictating what the farmer/grower gets?

Europe: ***k off! They're starting to piss me off. Didn't I vote No the first time in Lisbon and only Yes second time round because you promised soverign tax policy & retainment of commissioner?

Yes, ***k off!

Thank God for Lidl, Aldi and to a lesser degree Tesco. Keeping the Irish retailers a little more honest with their pricing.

alan85

My point is that you can't have it on all fronts. You can't expect to come into a 'free' market, take huge profits from necessities, promise taxation soverignty and then decide tomorrow that you don't like that aspect of the economy and tell us to change it.

Yes, it's all well and grand having a free market and allowing competition rule. It has brought benefits. But we should be equally free to compete where we can as a small nation just as the bigger nations can market grab through size alone. It's only fair that we keep decision over our corpo. tax imho.

greendom

alan85 wrote: »

My point is that you can't have it on all fronts. You can't expect to come into a 'free' market, take huge profits from necessities, promise taxation soverignty and then decide tomorrow that you don't like that aspect of the economy and tell us to change it.

Yes, it's all well and grand having a free market and allowing competition rule. It has brought benefits. But we should be equally free to compete where we can as a small nation just as the bigger nations can market grab through size alone. It's only fair that we keep decision over our corpo. tax imho.

I'd agree but I think we lost some of that freedom when we handed out the begging bowl.

alan85

greendom wrote: »

I'd agree but I think we lost some of that freedom when we handed out the begging bowl.

It doesn't make sense the way they're going about it either. They're sounding about our corpo. rate to the media. We're coming out and saying no way! It was even a deal breaker for the lower interest rate on the EU/IMF deal. So any potential FDI is hearing music from our side. We're looking strong on that front.

On the other hand if we were to higher corpo. rate now (if it did make sense say) it would make Ireland look feable in that we bowed to the politicans in Europe. So any company seeking to do business in Ireland would have to not only look to our legislatures but also to European ones too to get a good feel for what is going on here.

Soverignty is going to have to be one of our principles we push for during the IMF/EU debacle as is the welfare of the people and narrowing the gap between high earners/medium earners and non-earners. One of the biggest dis-incentives to not work is seeing people not do much and creaming it big time! It's not so much the gap between welfare pay and work pay.

whiteonion

alan85 wrote: »

My point is that you can't have it on all fronts. You can't expect to come into a 'free' market, take huge profits from necessities, promise taxation soverignty and then decide tomorrow that you don't like that aspect of the economy and tell us to change it.

Yes, it's all well and grand having a free market and allowing competition rule. It has brought benefits. But we should be equally free to compete where we can as a small nation just as the bigger nations can market grab through size alone. It's only fair that we keep decision over our corpo. tax imho.

When Ireland reach out for loans to the EU it stopped being a sovreign country. You receive money from other countries to keep this ship floating. That means you will have to do what you're told.

He who pays the piper calls the tunes.

dan719

whiteonion wrote: »

When Ireland reach out for loans to the EU it stopped being a sovreign country. You receive money from other countries to keep this ship floating. That means you will have to do what you're told.

He who pays the piper calls the tunes.

Your analogy of "keeping a ship afloat" is completely flawed. An Irish default would have massive contagion issues for the rest of the EMU and could even put the existence of the Euro at risk. It wouldn't be particularly pleasent for Ireland either, but we're not exactly a utopia right now anyway. That doesn't even take into account, that a return to economic growth for Ireland is the only hope for Germany to get it's money back. It should be encouraging factors that contribute towards it, rather than taking away competitive advantages this country enjoys.