Analysis
Ireland has blocked every effort to standardize taxes on massive companies
Since the 1990s, when a decade of impetuous growth resulted in Ireland being nicknamed the “Celtic Tiger,” foreign investments have held the power of life and death for the Irish economy. Such a model of economic growth is based on a frail balance and may easily collapse.
If there’s one country that has no reason to fear the threat of Donald Trump’s tariffs, at least as far as the digital tax is concerned, it’s Ireland. Not only is the Irish government unwilling to countenance a measure similar to the ones recently introduced by France and Italy to tax the revenues of large digital multinationals, but Ireland has also been one of the most active countries in the fight to stop such a tax in its tracks at the European level.
That’s no surprise. For decades, the Irish growth model has been based on attracting direct foreign investment, especially thanks to the very low tax on corporate profits. This has led many American multinationals to establish their European headquarters in Ireland, including all the major companies of the digital economy: Apple, Facebook, Google and Microsoft.
At a nominal 12.5%, corporate taxes can be reduced even further, as it emerged in 2016 when the European Commission revealed that Apple had used a complicated system of exemptions to pay an effective tax of just 0.005% on the profits earned in 2014 by Apple Sales International, the company’s subsidiary registered in Ireland.
Ruling that these practices constituted a state subsidy for the corporation, which is illegal under EU law, EU Commissioner for Competition Margrethe Vestager ordered the Irish government to collect €13 billion in back taxes that Apple would have had to pay between 2004 and 2014. However, both the government and Apple appealed the decision and the case is still pending before the European Court of Justice.
The approach of the Irish authorities to the Apple case is representative of the position held by all the Irish governments that have come to power over the last few decades: you can take everything away from us, but not our low corporate taxation.
This has led the Irish government to obstruct any attempt to standardize corporate tax regimes at the European level. Last week, 12 European countries, including Ireland, blocked the proposal for a directive that would have required companies with an annual turnover in excess of €750 million to declare how much profits they had made and how much tax they had paid for each European country. The proposal would have made it possible to demonstrate how some companies are using the favorable tax regime in countries such as Ireland or Luxembourg for their own benefit, declaring enormous sums there which they had actually earned in other countries.
In the discussions which took place between 2018 and 2019, the Irish government was also among the most active in opposing the idea of a European digital tax, even in the more modest version that emerged as a compromise solution. Since the EU requires unanimity on taxation, it only takes one objecting country to block any reform.
In June, the Irish Times, the country’s major daily newspaper, reported that Facebook had discussed with the government the possibility of paying less tax in Ireland to cushion the possible effects of a European digital tax.
Since the 1990s, when a decade of impetuous growth resulted in Ireland being nicknamed the “Celtic Tiger,” foreign investments have held the power of life and death for the Irish economy. Such a model of economic growth is based on a frail balance and may easily collapse.
Recently, the Irish Fiscal Advisory Council, the body responsible for overseeing the state budget, reported that just 10 companies accounted for 50% of the Irish state’s corporate tax revenue.
If even one of these large companies were to move away from Ireland, the effect on the state’s finances would be considerable. And, although the proposal to standardize corporate taxation at the European level has been blocked, the OECD is working on a proposal for a minimum corporate tax at the global level.
Accordingly, instead of concentrating all its efforts on defending a model based solely on foreign direct investment, the Irish government would do well to start thinking about an alternative development model.
Originally published at https://ilmanifesto.it/nellex-tigre-celtica-dove-la-digital-tax-non-ha-cittadinanza/ on 2019-12-04