Europe has done a number on the Irish corporate tax rate

Economy commissioner’s speech shows EU could compromise principles further

Paschal Donohoe, Minister for Finance and president of the Eurogroup, with  Matthias Corman, head of the OECD,   during the G7 finance ministers meeting in London earlier this month. Photograph: Andy Rain/EPA

Paschal Donohoe, Minister for Finance and president of the Eurogroup, with Matthias Corman, head of the OECD, during the G7 finance ministers meeting in London earlier this month. Photograph: Andy Rain/EPA

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The biggest countries in the world, led by the United States and supported by the European Commission and most European nations, are on the verge of a global agreement to curb the most egregious multinational tax avoidance practices and impose a minimum corporate tax rate of “at least 15 per cent”.

Meanwhile, as the big guys near the shoreline to land the deal, Ireland is struggling along in the water behind them, gasping and gulping and out of its depth. The others aren’t even listening any more as the Government coughs and splutters about tax sovereignty and competition and the rights of small nations.

It doesn’t matter that it has a point about the unfairness of a minimum tax rate. It’s all only noise now. Barring a last-minute diplomatic coup in Europe by Minister for Finance Paschal Donohoe, it doesn’t seem as if the others are of any mind to throw him a bespoke green life buoy.

This time you’re on your own, Irish. Start swimming or slip beneath the surface and let your land be a reef instead of an island.

International forums

By Donohoe’s admission, a hole of at least €2 billion could be blown in this nation’s finances. The changes are being rammed through various international forums by highly motivated people in Washington, Brussels and Paris, which is the headquarters of the Organisation for Economic Co-operation and Development (OECD), where Ireland’s fate is being sealed. There is little to suggest they will not get their way. Next month’s G20 meeting in Venice could be decisive.

The Government seems almost resigned to its fate. Yet a speech to a Dublin audience this week by Europe’s economy commissioner, Paolo Gentiloni, in which he shrugged his shoulders at questions over even deeper tax harmonisation, suggests things could get even worse for this State.

The circumstances that the Republic now finds itself in are almost entirely its own fault. For nigh on two decades now, various Irish governments comprising members of every political hue connived and looked away while US multinationals used the State as a safe house to filch other countries’ tax revenues.

The price of Ireland’s acquiescence was jobs and investment. Most of us know the essential truth of this, no matter what doublethink we deploy to cover it.

The State allowed itself to become one big, green trampoline, as multinationals used its regulatory elasticity to bounce billions of euro of profits across oceans to proper tax havens.

In this Olympics of tax gymnastics, we were lithe. Other countries eventually grew tired of the Irish shenanigans. Now, as the pub bores like to say, we are where we are and there is nobody else to blame.

Legitimacy

There is a huge difference, however, between the murky business of facilitating the filching of other countries’ taxes, and the crystal clear legitimacy of attracting investment with a 12.5 per cent corporation tax rate. The two are completely distinct pursuits, yet both are now inextricably bound together in the meta-deal that the big guys are driving over the line.

By backing the minimum rate element of the proposed global deal, the commission and Ireland’s bigger European colleagues have sold out this State on a fundamental plinth of the EU – the immutability of tax sovereignty, which is a national competency and not the EU’s.

What greater expression is there of sovereignty but the freedom to set your own tax rates? Ireland is now on the verge of being forced, through a looming EU directive, to implement an OECD deal and raise its rate to its disadvantage.

The Lisbon referendum in 2008 was defeated for many reasons, but one of them was the fear that the EU would clamp down on Ireland’s right to set its own corporation tax rate. No, no, no, they chorused in Berlin, Paris and Brussels. You’ve got it wrong. We would never do that.

And so after an acceptable political quarantine period, an EU leaders’ declaration was released the following summer which stated that the treaty would not mean “change of any kind for any member state, to the extent or operation of the competence of the European Union in relation to taxation”.

The referendum passed on the second time of asking in 2009 and the declaration was converted on to a protocol and tacked on to Croatia’s accession treaty to give it a legalistic fig leaf.

Certain opponents of Lisbon said elements of the treaty suggested the EU would in future pivot to use competition and internal market law to ram home corporate tax changes. But they were shouted down.

Competition law

A decade on, the EU pivoted to use competition and internal market law to try to ram home corporate tax changes. To deny that what was warned has transpired is futile, and only gives fuel to those who would have this State harm itself further by wading to the periphery or beyond of the EU.

It happened. Let us not pretend it did not. In supporting a global minimum tax rate, the commission has done a number on Ireland and booted national tax sovereignty up the backside.

When he was asked about this after his Monday speech to the Dublin-based Institute of International and European Affairs (IIEA), Gentiloni billed it as a “balance” and blathered on about differences in national systems distorting the single market.

That was disingenuous. It is really the bouncy tax gymnastics that distorted the market, and not the legitimate pursuit of attracting investment with a low yet transparent rate. The commission simply connived in slipping the rate element through to get something it has always wanted – a lever to hike away Ireland’s tax advantage.

It might start at 15 per cent. But once the principle of a global minimum rate is established, it could be easier to hike it further in future.

Donal de Buitléir, a one-time State official and former director general of the IIEA, then asked Gentiloni whether Europe might think it sensible to hike the corporation tax base first, before implementing a minimum rate.

Base harmonisation has been bitterly opposed by Ireland for years, as it is a clear infringement on national sovereignty. Gentiloni, a former Italian premier, could have replied “no” and set Irish fears at ease. Instead, he said it was “too soon to answer”.

This sort of ambivalence about even deeper tax harmonisation from one of Europe’s top economic officeholders should have warning lights on the Government’s dashboard flashing as red as Irish cheeks, as officials swim for our fiscal lives in the waves set off by bigger nations.

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