Ireland and the Universal Corporate Tax

Ireland is the lone holdout in a Biden administration scheme to level a global flat tax on corporations that decide to go offshore.

September 6, 2021

By: Bobby Casey, Managing Director GWP

Ireland tax Ireland has popped up a few times in our blogs. It got tangled up in the EU bailouts eleven years ago, but it was the one country that was serious about repaying its debts and getting its economy back on track.

One simple switch they made was low corporate taxes to encourage corporate investment, and it worked! Ireland was the first country to get out of the EU bailout program because it saw steady recovery and was on a great trajectory.

The irony in all that was, the EU simultaneously admonished Ireland’s competitive tax regime which facilitated that achievement, while touting Ireland as a success story of the EU bailouts.

Ireland is worthwhile for larger corporations like Apple and Google due to a famous, albeit, elaborate tax avoidance scheme known as the Double Irish:

The double Irish involves forming a pair of Irish companies to turn payments on intellectual property into tax-deductible royalty payments. The U.S. parent company forms a subsidiary in Ireland. The parent signs a contract giving European rights to its intangible property to the new company.

In return, the new subsidiary agrees to market or promote the products in Europe. Thus, all the European income—that previously would have been taxed in the U.S.—is taxed in Ireland instead. Then the Irish company changes its headquarters to Bermuda. No Irish tax, no Bermuda tax, and no U.S. tax.

Finally, the parent forms a second Irish subsidiary that elects to be treated as disregarded under U.S. tax law—by filing a one-page form. The first Irish company (now in Bermuda) can license products to the second Irish company for royalties. The net result is one low 12.5% Irish tax compared to 35% in the U.S. Even this tax can be reduced, since the royalties going to the Bermuda company are deductible.”

This was shut down last year by the OECD, but corporations still stuck around for the low taxes even if the whole scheme was no longer available.

Once again, Ireland is being criticized for it’s low corporate taxes. This time not just the EU and Belgium, but by all the top global economies.

I’d mentioned in July the intention of the Biden administration and the agenda of the G7 to impose more taxes on multinational corporations. One of the suggested tactics was to level a 15% corporate tax on any foreign corporations to avoid countries undercutting one another’s tax regimes.

Ireland is the only hold-out, and with very good reason. Look at some of the benefits Ireland has reaped from it’s 12.5% corporate tax stance:

  • In 2016, its economy grew by more than 26% the previous year. Unemployment was down, and foreign investment was up.

  • Its economy was growing at an eye-popping rate of more than 8% by 2014, when for years earlier it suffered a housing collapse

  • Tax receipts from multinational companies also gave government finances a crucial boost during the Covid-19 pandemic. In 2020, Ireland was the only EU economy to grow instead of contract.

That’s not all. According to the NYT recent article:

  • Overall, the Irish government hauled in €12 billion in corporate taxes last year, up from €4 billion seven years ago. Over half of the take came from the 10 largest multinationals.

  • Over 800 U.S. companies are present, spending €20 billion ($23.6 billion) annually on investments, goods and services and payroll, according to American Chamber of Commerce data. They employ an estimated 180,000 workers and indirectly support another 144,000 jobs in Ireland’s economy.

I’d have a difficult time letting that go as well. If competitors in any other industry were to collaborate on price-fixing it would be considered price fixing, and by and large this sort of collusion is illegal.

It’s illegal because it is the behavior of cartels. It’s anti-competitive rigging. Whether governments price-fix or prevent price-gouge, they are manipulating the market and stifling the natural signals pricing provides. Ireland’s low taxes, kept other countries in check, as they couldn’t very well charge 40% when Ireland is charging 12.5%.

True to government form, when they do something that is otherwise criminal for private citizens and businesses to do, they give it a different euphemism… I mean, name. So, theft is considered taxation or asset forfeiture when the government does it. When governments price-fix their taxes, it’s called “tax harmonization”. Awe. Isn’t that precious?

If Ireland were to concede on this, they risk losing these foreign investments. But if they don’t, it is still pretty bad:

  • Per the proposal, if a global minimum tax of 15% is agreed and Dublin doesn’t change its statutory rate, the United States would be able to step in and collect the remaining 2.5% of tax owed by an American firm, for example, on its profits recorded in Ireland.

  • If consensus builds around a 21% global minimum tax, that would erase Ireland’s competitive edge on taxes versus the United States, the source of more than 50% of foreign direct investment in the country.

Ireland stands to lose €2 – €3 billion in corporate tax revenue if this goes through. What’s worse, if the cartel decides to raise the rate, they’d have to go along with that too, so there would be nothing preventing run-away tax inflation.

I don’t know if Ireland can or will hold out on this. I hope they do. They were very clever with their tax avoidance scheme, and that was taken from them. They were right on their low corporate taxes and managed to get themselves out of quite a predicament, and now that is likely going away.

I’m pulling for them, but I think it’s time to face facts, there might not be a safe place left on earth for a business to go.

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