The threat to Ireland’s corporation tax

Thursday 30 May 2013 10.33

Tim Cook defended Apple's Irish tax status at a US Senate hearing

By Business Editor David Murphy

On my desk is a computer with a Google search engine (European HQ, Dublin) and Microsoft software (European HQ, Dublin). Beside my PC is an Apple iPhone (European HQ, Cork).

My desk happens to be in Dublin. But it could be anywhere in the world.

About 700 US multinationals employ 115,000 people in the Republic. They are part of the tapestry of the Irish economy.

But now somebody is pulling at the thread and there is a danger it could all unravel.

The hearings by the US Senate into Apple’s tax arrangements and its decision to label Ireland as a “tax haven” puts the State into the same category as countries which charge no tax at all.

In a sense, what matters is not whether this is true but the perception it creates.

It is no surprise that diplomatic engine is being revved up.

The Irish Government is going to use the G8 meeting in Co Fermanagh next month as an opportunity to convince world leaders that there is a big difference between Ireland and the Cayman Islands.

No doubt ministers will point out countries such as Luxembourg and the Netherlands have been offering arrangements attractive to multinationals for years.

The only distinction between those countries and Ireland is that the Republic had the misfortune to be singled out in a US Senate hearing.

Already Apple CEO Tim Cook has retracted his statement that the company secured a deal with Irish authorities on tax. That seems to have followed high level contact from Dublin.

Irish politicians are repeating the mantra that the tax system here is transparent.

It may well be, but the tax structures employed by multinationals certainly are not.

The only credible way for Irish politicians to defend the current system is to show how much tax these companies pay on activities in Ireland. That is far from clear.

But all of this is missing the big picture.

US multinational are exploiting legal loopholes across the globe to reduce their tax liabilities. The movement to try to tackle that is gaining momentum and is being led by the Organisation for Economic Co-operation and Development.

This week 12 more countries ratified an agreement on cracking down on tax offenders.

Ireland will be able to successfully defend its low corporation tax rate of 12.5% for some years. In the long run, however, there is significant risk the existing regime could crumble.

If US multinationals decided to move or reduce their presence here it would significantly dent employment and tax revenue.

Perhaps the Irish authorities should turn their attention to re-orientating the economy in the event that multinationals do pack their bags.

There is no point in hunkering down and saying it will never happen when there is a good chance that it might.

 

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