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.

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.