Changes to our taxation regime are inevitable

Times have to be bad when the competition for foreign direct investment has to resort to threatening minnows like Ireland and even Holland and Luxembourg to try and boost their own tax takes.

Granted, the implications for Ireland of having a 1,000 or so foreign direct investment (FDI) companies on these shores is absolutely vital, not only to the future growth of our economy but even to our economic survival. However, given the economic scale of those countries moaning about Ireland’s taxation relationship with foreign direct investment companies, Ireland is surely little more than a stalking horse for far bigger fry.

We are in a club that is known as the European Union and we need to abide by the taxation rules of this club as long as we are members. Government has told us that we have abided by the rules and we have nothing to fear. I trust, as most of us do, that is the case. If it is not we have a problem.

We do not know the genesis of this investigation. It‘s been speculated that it has emanated from the ramblings of a few US senators looking for air time who simply chose an appropriate opportunity to throw some unsubstantiated allegations about. According to Dr Frank Barry of Trinity College it’s because the EU is looking for some positive coverage. But there are other possible drivers.

In the earlier part of this year it was reported that Starbucks in the UK had paid little tax over several years despite having a huge turnover.

The British public were not impressed. It was also alleged that Google was incorrectly allocating revenues from one country to another more tax-favourable one despite the sales having been made in another.

Then Apple boss Tim Cook reportedly referred to having a special arrangement with the Irish Government. It appears he was wrong and he had no special deal on taxation other than what everyone else had. However, Pandora had escaped so now it is open season.

This appears to be a first-stage investigation. However, it is imperative we keep a very close eye on how it is evolving. Our very future depends on it.

That is, of course, unless we can, in the blink of an eye, move our economy from relying heavily on foreign direct investment companies to one considerably more reliant on the home-grown variety. However, it would be a very naive individual who would think that this can happen overnight. In this respect we might want to look at this as an opportunity rather than a threat.

It does, however, raise question marks about our position within the EU. We are at the very periphery of Europe. The water between us and mainland Europe is one of the most expensive crossings in the world.

Our highly competitive and quite legal taxation policies, coupled with our flexibility, relative ease of doing business, the skills of our people and the fact that we speak English and, of course, the fact that we have ready access to the EU market, make us an attractive location, particularly for US-based companies. Without this differentiation we would still probably be a small, agriculturally-based country scraping to make ends meet.

Europe has been more than good to us. However, that might change if our ‘partners’ feel that we are getting too big for our boots.

Some of our partners have already tried to have our corporation tax rates increased.

When that stalled the next focus was on having a common base. Another option mooted is to pay tax on profits in each country in proportion to the sales in that country. None of these will be good for us. However, we must prepare for change. Sitting back and hoping ‘it will be alright on the night’ will not cut it anymore.