Wolfgang Münchau is wrong on case for Irish exit from EU

Our low-tax business model is not broken and it makes no sense to follow UK out of union

"Perhaps the confluence of Brexit and the long-term loss of a business model will persuade Ireland to follow the UK out of the EU," suggested Wolfgang Münchau, as reported in this paper on October 10th.

The tenor of the argument reminds me of the old saying “you cannot control the wind but you can adjust your sails”. However, implicit to the success of this philosophy is knowing which way the wind is blowing and the type of vessel you are sailing. Münchau is mistaken on both counts. Ireland has benefitted hugely since joining the EU in 1973 and it would simply not make sense for Ireland to exit the single market.

Without doubt Brexit has contributed significantly to a unique period of turbulence which may have long-term negative overall implications for Ireland. The Department of Finance has recently downgraded Ireland's GDP growth projection for 2017 to 3.5 per cent, from 4.2 per cent prior to Brexit, and since then we have seen the sterling "flash crash".

I fully agree that Irish business, and by extension “Ireland Inc”, does need to consider the implications of Brexit and plan accordingly. However, that must be in the context of Ireland remaining part of the EU, leveraging the certainty this provides, including our euro exchange rate, along with myriad membership benefits.

Workforce mobility

A potential exit from the EU would impact our ability to compete on a level playing field within the single market. In the absence of new trade agreements, potential border tariffs would likely make our products and services into the EU more expensive as additional costs are passed onto the consumer.

Duty imposed on imports into Ireland would also be a real cost for Irish businesses. We also have a thriving foreign direct investment sector. Many multinationals have located to Ireland on the basis that they can get access to this single market, much more so than is the case with the UK.

Then there are the implications on workforce mobility. All these points were made to varying degrees by the Remain side in the UK referendum and they are the same points arising as issues of significant complexity in a hard Brexit.

With direct access to the EU, a pro-business environment and a highly skilled English-speaking workforce, Ireland continues to be a great location for investment, as well as a superb platform for international business. Ireland should make every effort to play its role in the continued evolution of the EU and ensure that the outcomes of negotiations about the future of Europe are in the best interests of Ireland, our people and economy.

Apple ruling

The more fundamental contention in Münchau's article is that Ireland's business model as a "tax haven" has been blown off course by the European Commission ruling in the Apple "State-aid" case. Even the commission isn't selling that argument and was at pains to say there is no issue with the Irish tax system. Ireland remains an attractive and stable location of choice for long-term substantive investment. Yes, the absence of a strong ally in the UK around the EU table will not be helpful as the commission advances some tax proposals which are bad for business, bad for competitiveness and bad for Ireland, but we should have confidence in the strength of our position and trust in our like-minded friends.

Following the Irish Government decision to appeal the Apple ruling, Minister for Finance Michael Noonan said: "I believe that there are some very important principles at stake in this case and that a robust legal challenge before the courts is essential to defend Ireland's interests. The full amount of tax was paid in this case and no State aid was provided. Ireland did not give favourable tax treatment to Apple. Ireland does not do deals with taxpayers."

The decision of the European Commission is very much at odds with the tax policy framework emerging from the OECD, and the decision must be viewed in this (very political) context rather than a signal that our tax system is not fit for purpose.

Tax reform

On the contrary, our tax system is founded on the strict application of the law. Ireland, as a founder member of the OECD, has been at the forefront of international tax reform. Ireland has been an early mover in implementing the OECD’s Base erosion and profit shifting (Beps) project and has participated fully in important reforms at EU level through the recent Anti-Tax Avoidance Directive.

Ireland is a strong supporter of tax transparency and administrative cooperation, which are key to tackling the global problems of tax avoidance and aggressive tax planning. Getting this message through to some is a slow burn but bit by bit it is happening.

Business needs certainty. The stability and certainty of a pro-business Government, symbolised by the 12.5 per cent corporate tax rate, is one real positive in a sea of uncertainty. Many Irish businesses have come through the worst recession in decades and have shown great resilience. I have no doubt that with our natural strengths and agility, Irish business will navigate these uncertain waters and emerge stronger than before – but, importantly, as part of a wider EU community.

Feargal O'Rourke is Managing Partner of PwC Ireland