Cantillon

Inside the world of business

France’s Google demand puts Irish tax rate back in spotlight

Not for the first time, Ireland’s 12.5 per cent corporate tax rate is under French scrutiny. This time the focus is on Google, which employs 2,000 people in Dublin. The French authorities have reportedly handed the multinational a €1 billion tax demand for revenues earned there but taxed in the Republic, although the company denies this.

French president François Hollande is said to have raised it with Google chief Eric Schmidt at a meeting on Monday.

This has to be seen against the background of a different row. France wants Google to pay for linking users to French newspapers, and also views the search engine giant’s plans to scan French books that are out of copyright with some disquiet.

The country may have a case in relation to those questions, but the tax issue is a non-runner. Google uses the same transfer-pricing system as many other multinationals to maximise the benefit of basing operations in low-tax jurisdictions such as Ireland, the Netherlands and Bermuda.

The arrangement is based on legislation in the relevant jurisdictions along with various tax and EU treaties. This is all done in the open. The tax laws here and in the Netherlands are not secret. The EU allows capital to move freely between member states. The US authorities approve such arrangements. These schemes would not work without the co-operation of several jurisdictions. However, France, and a number of commentators, tend to home in on the role Ireland’s corporate tax rate plays in this.

That is fine. We never tire of advertising it and making it clear that we’re not going to give it up. But before going on the attack, other EU members need to ask themselves what chance there is of us ever repaying the €67 billion bailout they have part-funded if we’re forced to lose our tax advantages, and with them some of our biggest employers.

Laureate urges austerity rethink

CHRISTOPHER PISSARIDES is the latest Nobel economics laureate advocating a rethink of the austerity-heavy approach being adopted for sorting out over-indebted euro zone nations.

“The troika should be softer on fiscal austerity,” he said in a speech at the British Academy in London yesterday. “More time should be given for structural reforms to work,” argued the London School of Economics professor.

The problem is that the needed reforms may take about four or five years to have an impact on the economy, while fiscal austerity has an instant impact.

An insistence on austerity could produce an “immediate deterioration in the labour market that might undermine the whole reform process”, Pissarides said.

“It’s like trying to cure a patient by making him ill, and in the meantime you might discover that the poor fellow has gone.”

Yesterday also saw the UK’s version of the ESRI – the National Institute of Economic and Social Research – come out against austerity, saying that “in current circumstances, fiscal consolidation is indeed likely to be self-defeating . . . As a result of the fiscal consolidation plans currently in train, debt ratios will be higher in 2013 rather than lower”.

Both comments follow a warning from the International Monetary Fund earlier this month that budget consolidation programmes may cause a bigger-than-anticipated drag on economic growth.

But their comments appear to have fallen on deaf ears, with Greece called on to cut again and deeper yesterday by Luxembourg’s prime minister Jean-Claude Juncker – head of the euro group of finance ministers – as he tries to conclude an agreement by November 12th to unlock more money for Greece.

But with euro-area unemployment hitting a new high of 11.6 per cent, it’s probably past time to pay heed to Pissarides and his peers.

Vote results on future of Glanbia will provide much food for thought 

GLANBIA IS entering a crucial month that will determine the direction of the company.

On November 13th, about 7,500 co-operative members will vote on the first stage of a process that will see Glanbia plc hive off its milk business in Ireland as part of a joint venture with its co-op shareholder.

The proposed new entity, Glanbia Ingredients Ireland, will be 60 per cent owned by the co-op and 40 per cent by the plc. It will oversee the completion of a new site at Belview in Kilkenny.

The plc will then concentrate on its nutritional business, which has been the main driver of growth.

The first vote, which needs a 50 per cent majority, will involve the offloading of 3 per cent of the co-operative’s 54 per cent holding.

If passed, two more votes will be held, which will determine whether a further 10 per cent of Glanbia’s co-op share in the plc should be offloaded, 7 per cent of which will be distributed to farmers, and 3 per cent of which will be used to fund the new entity.

These votes – which will have implications for the funding of the new venture – need a 75 per cent majority.

Meetings have been taking place across the country over the past month or so between co-op members and the plc.

The benefits to farmers include the option to cash in some shares, as well as the prospect of being paid for their milk by a co-op controlled entity rather than by a plc that has a duty to its shareholders first and foremost when it is deciding milk prices.

Nonetheless, the deal is by no means sealed, with up to four board members believed to be against it.

As shareholders weigh up their options in the coming weeks regarding this extremely complex deal, the importance of the vote should not be underestimated.

As a Macra ne Feirme conference heard over the weekend, there are fears that the potential of the promised agri-food boom may have been over-played by some, and the next few years will be critical for farmers.

As it is the biggest milk processor in the country, how Glanbia proceeds as it rises to take advantage of the opportunities afforded by the opening up of dairy markets in 2015 could have crucial consequences for the Irish dairy industry.

Quote of the Day

It’s like trying to cure a patient by making him ill

- Christopher Pissarides, Nobel economics laureate, on Europe’s austerity programme

Today

The Taoiseach meets German chancellor Angela Merkel, while closer to home those with an interest in economics will gather in Kilkenny for the start of the latest Kilkenomics Festival

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