Taxing multinationals

Thu, Oct 17, 2013, 01:00

For decades the 12.5 per cent corporate tax rate has remained a cornerstone of domestic economic policy. What began as a zero rate of tax on income from export sales of manufacturing goods, later evolved into a low tax rate on corporate profits. Over more than half a century, a consistent and stable low corporate tax regime has attracted a huge volume of foreign direct investment to Ireland. More than 1,000 international companies have set up here, and an estimated 285,000 people either work directly for these companies, or service their activities.

But since 2008 and the economic downturn, more governments have struggled to reduce their soaring public debt levels and have done so in part by maximising their tax revenues. At the same time, multinationals and others have sought to minimise their tax bills, and to boost their profits. And some have done by using elaborate tax avoidance measures and aggressive tax planning. In recent months large multinationals – including Apple and Google – have been seen to use transfer pricing to route profits from high tax countries – such as the UK and France – to low tax countries, including Ireland. The resulting public controversy has led to accusations that Ireland is a tax haven: a claim that both the Government, and the OECD have strongly rejected.

In June, the Group of Eight world leaders meeting at Enniskillen favoured, in principle, major tax reform to curb tax avoidance and tax evasion. The OECD is drafting proposals for a new international tax code. Against that background, the Government has best protected its position on corporate taxation, by publishing a tax charter. There, for the first time, Ireland’s international tax strategy is clearly outlined. The Government was right to do so, and to set out clearly the principles that inform Ireland’s approach to maintaining its low corporate tax rate, while also expressing its willingness both to meet fully its obligations to all tax treaty partners, and to support EU and OECD efforts to tackle harmful tax competition.