As global pressure on corporate tax rates grows some feel Ireland should jump first

The main event in Dublin last Tuesday morning was the final meeting in Government Buildings of the last cabinet.

Around the same time, however, senior people from more than 60 international companies gathered nearby in Baggot Street to discuss one of the hottest topics to be settled by the new Cabinet: whether it should take unilateral steps to ease pressure on corporate tax policy.

This private meeting, in the headquarters of business lobby Ibec, is understood to have heard a briefing from Department of Finance officials on the state of play in a major examination of global business tax rules by the OECD in Paris.

The OECD will issue an initial series of non-binding recommendations in September but its work will not conclude until November 2015. Only then would the question of a binding multilateral plan come into play. Yet countries such as Ireland, which have well-developed corporate tax regimes, are already under pressure to tackle aggressive avoidance schemes facilitated in their laws.

At issue for the Government, said several tax and legal practitioners, is whether it makes an early move to phase out the “double Irish” tax mechanism, which enables big global companies to minimise tax by exploiting differences between the law in Ireland and that in other countries.

In sum, the objective behind unilateral action would be to take some of the heat off Ireland by scrapping the scheme whose very name acts as a lightning rod.

The argument also goes that the Government would secure better international terms for phasing out such mechanisms by moving early.

With a state-aid investigation already under way, in Brussels, into Apple’s tax arrangements in Ireland, the argument is also made that a move now would lessen the risk of any further state-aid inquiries by the European Commission. This is in spite of Dublin’s insistence that the Apple investigation is groundless.

There is some sympathy for this in the business community and certain large companies are said to be in favour of an early move. But senior sources in the business community suggest there is greater momentum behind those who say Dublin would do better to await the final outcome of the OECD process.

The case is readily made that phasing out the “double Irish”, before any reciprocal moves elsewhere, would simply result in business carried on here going to other jurisdictions.

Questions are asked as to why the Government should move before Dutch leaders, and whether unilateral action in respect of one scheme would prompt yet more pressure on others.

Further questions surround the likely stance of incoming European Commission chief Jean-Claude Juncker. He was for 18 years prime minister of Luxembourg, a country with no shortage of corporate tax mechanisms.

According to Ibec chief Danny McCoy, a “majority” of businesses here would prefer it if the Government awaited actual action at global level before any Irish move.

“The absolute agreement in the Irish business community is that the reputation of Ireland is for a low corporation tax environment, not a no-tax environment. Everybody is agreed on that,” said McCoy.

“The question then is how do you act in concert with our international partners – ie, the multilateral approach – to underpin that and squeeze out facilitation of no-corporate tax payments.”

Given the relentless push for inward investment to create jobs, Dublin would not lightly take steps to dilute the Irish regime. Yet the situation in the outside world is changing rapidly. In the face of acute political controversy over big-name companies paying little or no tax in some jurisdictions, the OECD’s basic mandate is to develop a plan to prise a fair share of tax from firms the world over. It matters greatly that the OECD process has political buy-in at the highest level globally, with leaders of the G20 countries wedded to the cause of stamping out aggressive avoidance.

Although Dublin successfully spurned a Franco-German assault on the low corporate rate during the bailout, it is generally recognised that the momentum for change at the global level is escalating.

The irony, indeed, is that there is no apparent threat to the 12.5 per cent rate itself.

In question, rather, are the legal and accounting add-ons entrenched in the Irish regime, which help companies drive down the tax they eventually pay.