Saturday, October 22, 2016

22/10/16: Irish 12.5% Tax Rate and Someone's Loose Lips


It has been some time since I commented here on the matters relating to Irish corporate taxation. For a number of reasons not worth covering. But one piece of rhetoric in the post-AppleTax ruling by the EU Commission has caught my mind today: the statement from the Taoiseach Enda Kenny on the issue of 'Loose Lips Sink Ships'.


Here's what happened: as reported in the Irish Independent, the Taoiseach "warned that "loose talk" about taxation in Ireland was potentially damaging in the face of the Brexit threat. "Ireland will obviously debate these things constructively but to be clear about it, our 12.5pc corporate tax rate is not up for grabs... It's always been 12-and-a-half and it will remain so."" The statement was prompted by the rumours (err... reports) "the European Commission has not ruled out examining 300 more of Ireland's tax rulings."

Mr Kenny said that "The commission have never stated that there are other impending state aid cases against Ireland and to suggest otherwise is mischievous, is misleading, and is wrong... And that type of loose talk is potentially very damaging to our country. It does impact upon companies looking - particularly given the Brexit situation - as to where they might want to invest."

So here's the problem, Mr. Kenny: no one is seriously suggesting that the problem with Irish corporate taxation is 12.5% headline rate. I have not seen any reasonably informed source commenting on this. The problem - as as subject of investigations by the EU Commission in the recent past - is the granting of preferential loopholes that went well beyond the 12.5% rate.

So what grave 'threat' to Ireland's tax regime is Mr. Kenny addressing by setting up a straw man argument about 12.5% rate 'rumours'? Answering that question would likely expose whose lips are loose on the matter. My suspicion is that Mr. Kenny deliberately creates confusion between the discussion of the headline rate (which is not happening) and the discussion of the loopholes (which is probably on-going, because (a) things might not have stopped with Apple; and (b) global tax reforms - e.g. BEPS-initiated process - are still rolling out. If so, then it is Taoiseach's lips that might be doing Ireland's 12.5% headline rate some damage.

Personally, I believe Ireland's 12.5% corporate tax rate is just fine. And I also believe that special, individual company arrangements on any tax matters are not fine. I also believe that Ireland should phase the latter out in a transparent fashion, instead of creating another maze of non-transparent and gamable by the larger corporation 'knowledge development box' incentives. Incidentally, tax personalization for Irish entities continues, it appears, with the publication of the Finance Bill this week, where tax procedures for Section 110 companies valuation of inter-company loans was left largely a matter for individual arrangements. BEPS will take care of the rest, or it might not, but that would no longer be a matter of Ireland's failure and it won't challenge our 12.5% tax rate.

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