Ireland clinging to cherished corporation tax rate

A man walks past newspaper headlines posted on a news stand on O'Connell street, Dublin, November 19, 2010. A financial aid plan to help Ireland cope with its battered banks will be unveiled next week, EU sources said on Friday, but experts warned a rescue may not be enough to prevent contagion to other euro zone members. - Photo by Reuters.

DUBLIN: A major stumbling block in talks between the EU, the IMF and Dublin is Ireland’s 12.5 per cent corporation tax rate, which has helped attract international companies and spark growth.

The rate, one of the lowest in the world and a key reason why companies such as Google and Microsoft do business in Ireland, is under severe pressure as negotiations on a bailout package continue in the Irish capital.
The European Union and the International Monetary Fund want to see it raised in return for any bailout for Ireland and its debt-ridden banks.


Finance Minister Brian Lenihan said the tax was “a red line” while Deputy Prime Minister Mary Coughlan said it was “non-negotiable”.

It’s easy to understand why: Ireland’s so-called “Celtic Tiger” boom was driven by the cheap tax rate, before the economy crashed dramatically in 2008.

Enterprise Minister Batt O’Keefe reckons that 240,000 jobs have been created by foreign companies, which equates to around seven per cent of the working population.

That represents “more jobs per head than in any other country”, he said.

“Corporation tax is critical to Ireland’s economic recovery”, said Lionel Alexander, president of the American Chamber of Commerce Ireland (ACCI).

“Foreign direct investment (FDI) accounts for 110 billion euros or over 70 per cent of total exports in the Irish economy,” he added.

The facts speak for themselves: Google, Microsoft, Intel, Vodafone, GlaxoSmithKline and HSBC are among the big names of business who have established bases on the Emerald Isle, where multi-nationals employ more than 100,000 people.

In wanting to hike the corporation tax rate to bring more money into Ireland’s coffers, the EU and the IMF will do more harm than good, warned Danny McCoy, director general of the Irish Business and Employers Confederation.

“Any change in the corporation tax regime would be counter-productive to the collective efforts to reduce the budget deficit,” he said.

“Higher rates would mean less revenue for the state, as investment and jobs have the potential to move to countries outside the EU. This would not be in Irish interests or in the interest of the wider EU.” But a diplomatic source confirmed to AFP that the issue was very much on the agenda in the tough bailout negotiations in Dublin.

“It’s been two or three months that we’ve been pressing hard on this,” the source said.

The simple reason is that eurozone heayweights such as Germany and France believe it gives Ireland an unfair advantage.

“A certain number of European countries, including France, have remarked that… the corporation tax rate gives some room for progress,” a member of French Finance Minister Christine Lagarde’s entourage told AFP.

Last month, European Economic and Monetary Affairs Commissioner Olli Rehn started to turn the screw, saying Ireland’s huge 32 per cent budget deficit had brought its corporation tax rate into question.

“It is a fact of life that after what has happened, Ireland will not continue as a low-tax country, but it will rather become a normal tax country in the European context,” he said.

Foreign companies admit that a rise in the corporation tax could force them to change their plans.

Bill Doherty, Executive Vice-President of US medical research company Cook Medical and a member of the ACCI, said: “Any increase in corporation tax will have a damaging impact on our ability to win and retain investment in Ireland.
“The simple truth is that Ireland’s corporate tax rate is not the most competitive in the world.

“When we compete for jobs and investment we are competing not against the European Union, but against countries such as Singapore, Israel, India and China.” The tax rate was closely guarded by Dublin during the EU’s Lisbon Treaty negotiations and the referendums held on it in Ireland.

Fears that it would be put at risk fuelled the victorious “no” vote in the first referendum in 2008 — and guarantees that the EU would leave it alone helped swing the “yes” vote in the second referendum.