Jason OMahony - Irish political blogger, Irish politics, EU politics
 

An awkward reality about corporate taxes.

Posted by Jason O on May 21, 2016 in Irish Politics, The Times Ireland Edition |

The Times ScreenshotPreviously published in The Times Ireland Edition on 11th April 2016.

Here’s an interesting fact. In pretty much every recent EU treaty referendum we have had, the right to maintain low taxes for some of the biggest corporate names in the world was a key issue. All across Ireland, ordinary working people who pay nearly half their own income in taxes, went into polling stations to ensure those companies paid at most 12.5% in tax, and often only a fraction of that.

Why would they do that? Are we a nation of secret ideological Romneyites worried about the mega corporations and their right to keep their money?

The truth is, we’re smart and selfish. We recognise that those companies employ thousands of people in this country with very tasty pay packets which contribute to our taxes and get spent in our shops and restaurants. They rent and buy buildings and apartments and houses from very grateful Irish landlords, and take out mortgages from Irish banks that get giddy with excitement when employees from the world’s most famous companies come through their doors.

In short, this country is a company town. We know where and by whom our bread is buttered.

Of course, it means that we’re more conflicted than other countries are about the issue of those companies paying their proverbial “fair share” in taxation. We’re not France. We’re more Jersey or Isle of Man, a country that doesn’t want to rock the boat because they paid for the outboard motor.

And yet we still get angry, or at least pretend to when papers are leaked from Panama, or we’re told that giant companies are routing vast profits through various schemes to shield them from taxes. But is it a real affect-how-I-vote anger, or just an anger we copy from stuff we see online from the UK or US where it’s fashionable to be angry about these things?

Whether your anger is real or not, there’s a reason why you are going to have to care about this issue, and it’s this: public spending is going to continue increasing, because it has to. We live in an age where medical technology is advancing at an eye-watering rate, and with that, constantly higher public expectations. Thirty years ago a cataract or a bad hip was just a burden of old age, a cross one carried.

Now there is an expectation that the healthcare system must rectify the problem, yet another cost to the public purse which just didn’t exist in the past. If a man wasn’t cutting the mustard in the bedroom, that used to be his problem: now, with the invention of Viagra, it’s the minister for finance’s problem. All that additional medical capability prolongs life, which means that people are living longer and thus the cost of senior care is going to continue to rise too. Nursing homes aren’t cheap. State pensions are going to have to be paid for more people and for longer.

In short, it’s no longer a question of whether we want to collect higher taxes from multinationals, but having to.

It will not be politically sustainable, certainly across Europe, to tell voters that their healthcare expectations will have to be reduced because multinationals don’t want to pay taxes.

As with so many other issues, Irish politicians, like their continental counterparts, will eventually have to confront the reality that corporation tax competition, whilst a short term benefit, is reducing the tax base. Tax harmonisation across the EU, that dreaded concept, is going to have to be considered.

One can argue against a common EU corporation tax rate, and there are good arguments against, especially for countries like Ireland or Cyprus, on the outer edge of Europe. But you can also recognise that a common means of calculating corporate tax liability is going to be needed to crack down on avoidance. The Common Consolidated Corporate Tax Base (CCCTB), which Ireland opposed as the beginning of a move towards tax harmonisation, is the agreed set of rules by which each member state levies corporate taxes, regardless of what rate is set nationally. This is now back on the table with a vengeance from the European Commission, and it isn’t going away, especially not if the Brits take their coat and leave in June.

In fact, the issue is going to get even more complicated. After all, even if the EU were to agree a common corporate tax policy, there’s nothing to stop those same companies just basing themselves outside of Europe.

That must surely then open a whole new front in the debate. Is it acceptable that we give access to Europe’s greatest asset, our 500m consumers, and then let them give us the two fingers when it comes to contributing towards maintaining that market?

Because let’s not forget: yes, they can move their profits offshore, but they can’t move their consumers, our people. We’re the prize. Is it possible, for example, for the EU to devise a special sales tax specifically targeted at the products of companies that aren’t morally tax compliant in Europe? A tax on, say, a certain brand of coffee shop which then gives its’ morally tax compliant (often small business) competitors an actual price advantage?

In short, you can hide all you want in Grand Cayman, but when we start disrupting your relationship with the people who actually buys your product, maybe then you’ll want to talk with the European taxman?

 

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