‘Excessive attraction’ to invest in Ireland for tax reasons – former US treasury secretary
Larry Summers says reliance on multinationals ‘cause of concern’ with US tax plans
Former US treasury secretary Larry Summers.
The former cabinet member in Bill Clinton’s White House and an economic adviser to President Barack Obama said that the differences between Ireland’s economic indicators showing the significant economic boost to the State from multinationals “suggest some cause of concern”.
The Harvard University economics professor was addressing an event hosted by Dublin think tank, the Institute of International and European Affairs, about the impact on the Irish economy on the Biden administration’s proposal for a global minimum corporate tax.
US treasury secretary Janet Yellen has suggested a 21 per cent base tax rate for large multinationals that could undermine the Government’s 12.5 per cent corporation tax rate, for years an economic bait used to attract foreign investment.
“I suspect that will pose certain challenges for Ireland,” said Mr Summers in response to a question posed by The Irish Times.
Ireland was still an attractive place to live, for expatriates and a location to produce goods, particularly for companies from other English-speaking countries seeking “to access the European continent” following the UK’s departure from the European Union, he said.
“Ireland should prosper on the basis of those strong structural advantages,” he said.
However, he said that his “hope and expectation” was that “negative pressure” would come on Ireland making itself attractive not from those “very substantial, real advantages” but the country’s “ability to be a location for tax arbitrage”.
He pointed to the differences between the gross domestic product measure that captures the economic activity from multinationals and gross national income that covers domestic activity as a concerning indicator for Ireland in light of the US plan to reduce domestic corporate tax.
“I don’t believe that Ireland is unable to prosper on the basis of its great economic strengths rather than going some distance in the direction of the Cayman Islands or other tax haven jurisdictions,” he said during the online event.
The US plan was aimed at “containing the race to the bottom” on international taxation to prevent “mobile capital” escaping taxation through “transfer pricing” – shifting profits across companies within a global business – and the choice of location of a corporate headquarters.
“I believe that that is philosophically appropriate, though I recognise that there’s an enormous amount of complexity and challenge in the detail,” he said.