Tricky manoeuvres on tax
Finance Minister Michael Noonan, as chairman of the European Union’s finance ministers during Ireland’s time as president of the European council, finds himself in a delicate position today. In his European role, he will chair a meeting of finance ministers to discuss tax evasion and tax avoidance. The meeting takes place against the background of growing public controversy about how multinational companies use jurisdictions, such as Ireland and other low tax countries, to minimise their corporate profits. Mr Noonan may well be reminded of a memorable line in the great Italian novel The Leopard : “If we want things to stay as they are, things will have to change.” Some reform is necessary, but the Government will also be concerned lest any reform seriously threatens the competitive advantage that Ireland enjoys via its low corporate tax rate – on which it heavily relies to underpin national economic recovery.
At a time when austerity forces taxpayers in countries with major fiscal deficits to pay more, international scrutiny has increasingly focussed on major multinationals – notably Google, Amazon and Starbucks – which by skilled use of tax planning and tax avoidance schemes manage to shelter their profits, and to pay less tax. This has, rightly, angered taxpayers. They feel aggressive tax avoidance is anti-social, and unfair. France has challenged Google’s tax status in Ireland, and claimed that the company’s use of transfer pricing – by routing profits from high tax to low tax countries – allows Google to benefit from the low Irish corporate tax rate, at France’s expense. Google, which has located its European base in Dublin, where it employs some 2,000 people, has always claimed that it complies fully with the tax laws of the countries in which it operates. And Mr Noonan, like his predecessors in office, has dismissed any suggestion that Ireland is a tax haven, pointing out that multinationals, like Google, employ thousands of people in their company’s extensive operations in this country.
There is now, at EU and international level, a far greater determination than before to tackle tax evasion and tax avoidance. One recent estimate suggests EU member states now lose €1 trillion each year through tax evasion and avoidance. At next week’s summit of EU leaders, the subject will be a major item on the agenda. And tax will also be the main concern at next month’s G8 summit in Northern Ireland, under the British government’s chairmanship. British prime minister David Cameron aims to make both the European Council and the G8 meeting “the turning point in the battle against tax evasion and avoidance”. That, however, will also require governments that have created tax systems, which have greatly encouraged businesses to engage in tax avoidance, now to become first movers in major tax reform. And that will prove hard to achieve.