A low corporate tax rate is a matter of pragmatism, not inferiority

I must politely differ from the opinions recently published here on the subject of the Irish corporation tax system. I don’t think we have a relatively low corporate tax rate because we suffer from some kind of national inferiority complex. I don’t think we collectively fetishize this regime either. I think even less that we keep our corporate tax rates low out of fear.

On the contrary, I think we keep corporate tax rates low because it makes sense to do so in the case of Ireland. Our history has shown that a low corporate tax system is generally beneficial to our collective economic well-being.

Maintaining the competence of EU Member States to determine their own tax rates in most areas of economic activity is an important counterweight to the other economic forces at work within the EU single market which would tend to aggregate economic activity at the center in terms of geography, population, physical resources, economic strength and political power.

These centripetal economic forces left to their own devices run counter to the interests of the most vulnerable, most peripheral and least politically and economically powerful Member States.

How many of our largest treasury contributing companies would have located here if our corporate tax regime was similar to that of the UK, France or Germany?

Especially in a global economy of mobile, transnational capital where there is a need for foreign direct investment to create local jobs, it is cavalier to suggest that important decisions about business location are unaffected by the applicable tax regime. to their location.

And we should also ask ourselves which countries are most demanding tax approximation and an end to what they call “unfair tax competition”, and why?

My impression is that it is usually the largest, most economically and politically powerful, most historically developed and most capitalized states that cry out the loudest – not the weakest.

foreign investment

There are, of course, different forms of foreign investment. A tax-sensitive decision to locate a €100 million Intel chip manufacturing plant in Ireland can be significant nationally and regionally in terms of sustainable employment.

On the other hand, granting favorable tax treatment to foreign investors to buy apartment complexes already under construction may provide little or nothing of lasting benefit to our well-being (unless it is turns out that we fail to finance the construction of houses from national resources – a very dubious proposition).

And of course, there’s always the fiscal policy question of whether it’s better to take less of a big pie in fiscal terms than more of a little pie. When it comes to fiscal and investment policies, always keep the old chestnut in mind: “It’s fine in practice, but will it work in theory?”

We must also remember that there is often a very large difference between effective corporate tax rates and nominal rates.

We have an IDA which is responsible for attracting foreign companies to set up in Ireland. What does it say about whether we can or should abandon our low corporate tax system? How many of our largest treasury contributing companies would have located here if our corporate tax regime was similar to that of the UK, France or Germany?

How many of them would leave if we moved significantly in that direction? How many new big companies would set up shop here in the future if we had to? And what would be the financial consequences of such an action over time?

The important point is to serve our national interest by using our tax policy sovereignty to produce the best outcome for Ireland in the long term.

What, if any, are the pros and cons of Ireland being seen as having a long-term commitment to low corporate tax rates?

Asking these questions is not indicative of the politics of fear or of some form of national immaturity or inferiority complex. It is perfectly rational to address these issues and come to a balanced and rational conclusion about the policy direction to take. It is irrational not to do so.

Vulture funds

Adopting an a priori ideological approach to national corporate tax policy without carefully considering the risks and benefits is not only irrational – it’s irresponsible.

It is true that it is equally rational to ask rash questions about whether an overly generous tax regime has been granted to foreign vulture funds and foreign investors buying to let and building to rent (as I believe has occurred). The same goes for other loopholes that seem to produce extremely low effective tax rates for particular activities – small fractions of our nominal rate of 12.5%.

But the important point is to serve our national interest by using our tax policy sovereignty to produce the best outcome for Ireland in the long term.

The government is right to be wary of the proposal to have an international minimum corporate tax rate without real guarantees that it is not just a step down the slippery slope of forced fiscal approximation.

The difference between 12.5% ​​and 15% may not be great. But the danger for Ireland of a further approximation of tax rates or a radically different implementation of rates could be.