Paddy Cosgrave: Why Ireland must end its reliance on low corporate tax

State’s reputation and economy are at risk of damage as a result of our tax regime

 File image of Paddy Cosgrave speaking to media  in Dartry, Dublin. File photograph: Dara Mac Dónaill/The Irish Times

File image of Paddy Cosgrave speaking to media in Dartry, Dublin. File photograph: Dara Mac Dónaill/The Irish Times

 

When John F Kennedy said in his historic speech at Leinster House in 1963 that Ireland “has never been a rich or powerful country, and, yet, since earliest times, its influence on the world has been rich and powerful”, it wasn’t just rhetoric. Ireland’s power and influence in the world is real. But it’s not because of our size, it’s because of our brand. Ireland and Irish people are liked in a way few others in the world are.

International sentiment, however, towards brand Ireland is growing more negative by the day. And that should matter for anyone concerned for the job security and economic prospects of people across Ireland over the next decade. Here is why.

A United Nations special rapporteur suggested last month that “preferential tax laws” existed in Ireland and five other nations for property funds. These laws were, she added, “wreaking havoc” and “cannot continue”. The special rapporteur’s observations, which in my view are somewhat dramatic and light on evidence, are nevertheless not the first time Ireland’s tax laws have been questioned in recent weeks.

On the day the UN findings were published, The Irish Times produced more than 100 articles. These included excellent reporting on Brexit, as well as a well-written piece on Danny Healy Rae’s belief that deers were “taking over” Kerry and the Army needed to be “sent in”.

Preferential tax laws

The normally exceptional and wide-reaching Irish Times, however, while managing to cover deers in Kerry, missed the findings of a UN special rapporteur on “preferential tax laws” for property funds entirely.

The Irish Times has regularly covered highly critical reports, reviews and studies on Ireland’s tax laws. But in recent weeks there have been so many such international reports about Ireland’s tax laws that it’s understandable the leading newspaper in Ireland might miss one, even by the UN.

A nation, however, especially a small one, cannot afford to miss the opinions of a growing list of experts, nations and various international institutions, in particular the European Parliament, European Commission and UN, all in recent weeks. After all, if history tells us anything, it’s that the sovereignty of small nations extends only so far as it does not encroach on the interests of far larger nations.

Internationally the mood music has soured for Ireland’s tax model. Profit shifting has moved from an obscure concept to centre stage in discourse around the world. Profit shifting is increasingly regarded by many as the true barometer of the extent to which a country is a tax haven. Ireland, according to some of the leading experts in the field, shifts more profits than any other tax haven on Earth.

Our Ministers might disagree on semantic and definitional grounds. Outgoing Fine Gael MEP Brian Hayes might dismiss international findings as nothing but “jealousy”. But unfortunately that’s not how much of the world increasingly thinks about Ireland.

For example, for the first time, in the words of one of Ireland’s most notable business journalists, our Taoiseach was, on stage at the World Economic Forum 2019, “brutally undercut” on tax by a European colleague, the prime minister of Poland, Mateusz Morawiecki.

Morawiecki, for the record, is no leftist. On the contrary, he is very much a conservative. Normally, a European head of state “brutally undercutting” another European head of state in public would be a breach of Davos decorum. But on tax, and in particular profit shifting, the tide has turned against Ireland. And evidently it has turned across the entire political spectrum.

The question for the Government and for all of us in Ireland is simple: do we as a small nation want to continue to swim against this growing tide?

If Ireland were one of the largest and most powerful nations on Earth, I think you could make a reasonable argument that we should swim against the international tide on our tax laws. We could simply ignore the ever-larger and louder group of nations, experts and international bodies mobilised against our various tax laws.

After all, throughout history the largest nations and empires have regularly run roughshod over international opinion and norms.

The closing of the 'Double Irish' loophole was, it seems, a false start

But Ireland is not a large nation. In fact we’re not even a middling nation such as Canada or Australia. Instead we’re a small nation. In much of what we do we rightly recognise that what matters is our brand. As a small nation our power in the world is regularly referred to as “brand Ireland”. It matters that people like brand Ireland.

And for many decades Ireland has been liked internationally. And I would argue it is still very much liked. We can count on many friends around the world. But we’re starting to cash in on a lot of our chips that we accumulated through hard work and graft over so many decades.

Government’s defence

The Government’s defence that the OECD “does not classify Ireland as a tax haven” simply isn’t working anymore. In the last four weeks alone it hasn’t worked for the UN, the European Parliament and the European Commission.

Continuing to reassure the people of Ireland that everything is fine is naive. Especially now that the tax spotlight is shining so brightly on so many areas of Irish tax legislation.

My advice, for whatever it’s worth, is that Ireland needs to lead the transition away from low taxes or preferential taxes. If we proactively lead this transition, we can within reason do it mostly on our own terms. To do that we need to admit to ourselves that favourable tax rates, mostly for foreign entities, have for decades been our economic model. But we also need to admit the model has reached its sell-by date.

The closing of the “Double Irish” loophole was, it seems, a false start. Let’s admit that. It’s time to signal to the world we’re really transitioning this time. Otherwise, if history teaches us anything, we run a significant risk that the terms of our transition will inevitably be dictated to us by larger nations. And very much on their terms.

Let’s not let the growing international tide against our tax system wash away brand Ireland and damage our economy. Our brand and economy have been painstakingly built by so many over so many decades. We need to be a first mover.

Paddy Cosgrave is chief executive and co-founder of Web Summit

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