Time for creative Irish solution to corporation tax threat

THE battle lines have been drawn.

The stage is set.

The protagonists are armed and ready.

Corporation tax is the battlefield. And the warriors are the entire Irish nation versus all comers.

The Economics Commissioner Olli Rehn, in a typical straight-talking Finnish fashion, told it like it was: the Irish are unlikely to continue to have a low tax economy given the current circumstances.

With extra tax revenues to be found, who could doubt the veracity of his comment? When asked if he included in his estimation that most sacred of Irish cows – corporation tax – he made the obvious remark that nothing could be ruled out.

His statement of reality acted like a call to arms. The Department of Finance immediately said it had no intention of increasing corporation tax and that nobody could make us do so.

Irish citizens rose to the challenge, supporting them, making the issue a tenet of our national faith.

Having gone through two years where the economic collapse was denied at first and then only gradually revealed, isn’t it time to look at the realities and come up with an intelligent Irish solution for a change?

First of all, rather than standing with our backs to the wall and taking on anybody that dares to disagree with us, we should update some of the real studies on company taxation throughout Europe.

The Netherlands does not have such a huge amount of US investment because they like their canals, bicycles and tulips. They have built their tax system not just around a headline tax figure. They have introduced lots of conditions that makes it at least as attractive as Ireland’s when it’s all added up.

So why not explore and gradually upgrade Ireland’s corporation tax system so when the day comes when the headline rate has to be changed it will still prove very attractive to foreign investment? We should remember too that once the country offered a zero tax rate – and attracted zero investment – so it’s down to more than tax rates.

In the meantime perhaps we should also find a way where the facilities of the country, paid for by ever-more hard pressed taxpayers, are not given for nothing to foreign companies.

The argument that Europe needs to be competitive in terms of tax to attract foreign investment remains true. Ireland has long argued that competition between the EU’s member states contributes towards this competitiveness. But we should insist on that most beloved of EU values – a level playing-field.

Instead of fighting an eventual harmonisation of tax, the focus should be on two issues. One of these is that countries clean up their black economies – high tax countries like Belgium, Italy, France and others operate under-the-counter economies on two levels.

One is at the level of the worker willing to give substantial discounts for not having to provide a bill. The other is the governments that create loopholes to allow multi-nationals operate outside the normal tax system.

And finally, perhaps the biggest threat to Ireland, the harmonisation of the corporation tax base. As a major provider of high value goods from low-value imports and being so dependent on exports, this soon to be finalised proposal would be a disaster. Big companies will want to adopt it and won’t care that most of the tax is going to the countries with most sales, ie, big populations.

So it’s time to identify the real dangers and produce some real solutions.