It just got harder to sustain tax argument

During his third State of the Union address to the European Parliament earlier this month, European Commission president Jean-Claude Juncker sketched his vision of how Europe might evolve. 

He identified trade policy, security, and migration as priorities ahead of the 2019 European elections.

He said he hoped to expand the borderless Schengen area, and get more member states to use the euro.

These big-picture aspirations will gather momentum now that Angela Merkel has been re-elected and Emmanuel Macron is becoming more ambitious and assertive.

From an Irish perspective, the devil was in the detail of that speech. Mr Junker spoke of tax harmonisation.

Our standard response on these issues is that they are fine in theory but could not be contemplated by a small, peripheral member state struggling to make its way in a shark-infested world.

Our capacity to sustain that argument was dented by yesterday’s Comptroller and Auditor General’s annual report.

The C&AG found that 13 of the top 100 companies ranked by taxable income paid an effective rate of corporation tax of less than 1% — just a fraction of the statutory 12.5%.

This advantage was achieved, said the C&AG, by using “significant tax credits and reliefs, in particular, double taxation relief and research and development tax credits”.

Confirming that international tax laws are a labyrinth of smoke and mirrors, the C&AG referred to a study which found that while Ireland has the lowest statutory rate of corporation tax in the OECD, 12 OECD countries had a lower effective corporation tax rate.

Any response to those figures, doctrinaire or otherwise, must be shaped by an unavoidable reality. One in four people employed in the private sector — about 200,000 of us — in this State works for a foreign company that sells its products to foreigners.

The taxes that those workers and companies pay fund the public sector and public services, and anything that might threaten that revenue stream must be viewed with great concern.

Any threat to our corporation tax must be seen as a threat to the ongoing presence of some of these companies. US president Donald Trump’s plan to cut corporation tax from 35% to 20% may also be influential.

So too, Brexit — especially if Britain cuts its corporation tax rate to survive in the chillier, less amicable world it has chosen for itself.

These are real and pressing issues, but they are only one chapter in the complicated story of how societies and multi-national corporations interact.

All around the world, national governments are struggling to find a way to ensure that transnational corporations, especially those in the digital field, pay something that at least looks like a fair level of tax so decent societies might be sustained.

Apart at all from Mr Junker’s plans, Mr Trump’s proposals, and Brexit, it seems we will face a stark choice before very long.

Do we want to remain some sort of a rogue outlier facilitating tax optimisation for hugely lucrative transnational companies, or do we want to play our part in a European collective with the power needed to impose and collect fair taxes?

If we are serious about “all children of the nation equally” foundation promise, the answer seems obvious.