Ireland warned over corporate tax rate change

IRELAND must resist any attempt by the EU to change its 12.5% corporation tax rate, the authors of a major report on the state of the multinational sector in Ireland have said.

In the event of a bailout, which they also said must be resisted, Dr Tom McCarthy, head of the IMI, and Ronnie O’Toole, chief economist at National Irish Bank, said any shift, however small, would send the wrong signals to the key multinational sector in Ireland.

Mr O’Toole said the main thing markets are worried about is “future growth prospects” given the scale of the cutbacks facing us.

“Maintaining an export sector that is far out-performing any other country in Europe is the one thing that’s been winning for Ireland over the past two years,” he said.

In that context, any attempt to undermine the 12.5% corporation tax regime to be resisted at all costs, he said.

Dr McCarthy warned that any signal, to the US in particular, that we are going to change the corporation tax rate would result in a serious loss of foreign direct investment “at a time when the support of that sector was vital to our very future”.

Knowing how the multinational sector functions, with profit the primary driver of every corporate decision, Dr McCarthy said the loss would be very damaging long term for Ireland.

On a more positive note, the National Irish Bank/Irish Management Institute survey found that almost half of the multinationals surveyed expect to increase exports in the next 12 months.

In that context the respondents stressed the importance of retaining Ireland’s 12.5% corporation tax rate.

A total of 114 multinational chief executives, who are responsible for 54,000 jobs, responded to the survey.

A total of 26% of those surveyed are expecting to increase employment in 2011, while 22% have said they will shed jobs in the period ahead.

Overall, the survey highlighted the emergence of a globally improved business outlook while expectations around short-term business prospects are also beginning to stabilise.

Last year’s survey showed how companies in the multinational sector were shedding jobs but this year over half of respondents do not see any change in the levels of their workforce over the coming year.

Ongoing research demonstrates that “Ireland’s multinational sector is clearly highly sophisticated, with very efficient management practices,” the survey reported.

Research has shown Irish companies to be about 15% less efficient and that has an impact on earnings and job creation, Dr McCarthy said.