Posts Tagged ‘Corporation Tax’

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Ireland must re-invent itself

May 9, 2009



One of the main drivers of the Celtic Tiger was the attraction of Foreign Direct Investment (FDI) to Ireland with lower corporation taxes. Ireland having been in the economic dumps for decades jumped with glee at the prosperity of jobs that American corporations brought to Irish people. The other main driver was the property boom, fueled by low interest rates and speculation.

Both drivers are bust now: the corporations that fueled our economy are moving jobs to countries with lower costs (wages); thus we are again seeing a migration of Irish people to countries that have been the benificiaries of these jobs. It was, of course, inevitable. The bottom has fallen out of the property market worldwide and will not recover soon.

Yet Ireland is capitalistic, through and through. We seek not to examine our system and its moral failures, but to maintain our prosperity. It has not really occurred to the government (or the people) that capitalism itself is failing from internal contradictions, way beyond the control of the Irish government and industry.

Ireland is more dependent than ever on the EU, our own Big Brother, and locked into a capitalist form of economy for the foreseeable future. But the capitalist system is doomed, sooner or later.

For our own good, and the good of all, the word ‘socialism’ must creep back into our moral dialogue as a partial solution to the crisis of today. Putting ‘people before profits’ must be our priority in fashioning the Ireland of tomorrow. Ireland was a leader in economic development for the world previously; it must now find the courage to lead again with innovative thinking that moves us away from the shackles of corporate capitalism.

Here are some points to consider:

  • Economic theory without a moral dimension is savagery. When Ireland prospered from FDI and the jobs of foreign corporations, the people gorged themselves on affluent consumption without a thought to the real corporate priority of ‘profits’ before people. The consequences of ignoring the moral dimension of corporate strategy has left the Irish gobsmacked with the speed at which jobs are leaving the country.
  • It is always a mistake to ignore the basic philosophy of those on which one depends. What goes around comes around. It was Einstein who said that the definition of Insanity is doing the same thing over and over and expecting different results. We cannot fix what was the wrong direction; we can only be aware of the right direction. The Irish people themselves must decide whether personal affluence or common good is a priority for Ireland’s future.
  • With the current economic crisis, the approval of the Lisbon Treaty is likely as terrified Irish people vote in a desperate attempt to save themselves. Personally, I find provisions of the Treaty very troublesome, especially the prospect of having Nicholas Sarkozy or Tony Blair president of the EU for 2 1/2 years. (Both did extreme damage to the political unity of the EU in just the 6 short months of their terms recently: imagine what havoc they could wreak for five times that period?)
  • The Irish government scrambling to maintain Ireland’s lower tax rate for corporations may very well be in vain. First with more power, the EU has a strong eye toward ending this deferential designation for the entire Eurozone. Second, Obama is getting set to close the loopholes for American corporations who outsource their operations to avail of tax breaks internationally. (Article below) So the strategy of attracting more FDI for another boom maybe fatally flawed altogether.
  • We are not going back to the Celtic Tiger consumer frenzied lifestyle. The entire Western world is in the same position. Ireland is about to relearn the lessons it has forgotten from days gone by: less is often more. Waste and self-indulgence support corporate profits, but do not necessarily produce a happy, secure culture.

Once the Irish are finished lamenting the loss of materially surpassing the rest of the world, they may consider how to re-invent themselves and their economy in a way which affirms the basic values deeply embedded in the Irish culture. This will require some real focus on the now-to-the-future link, rather than action from financial panic; it will require solidarity and vision.

Ireland is small, but that is as much a boon as a disadvantage. By bonding with other small countries in the EU like the Czech Republic, the Irish people can change the future. Small countries of the EU can indeed tip the scale on the direction of what ‘political unity’ means in Europe.

Now is the time to lead with fresh thinking. But first we must stop and reconsider our basic values and shade the glare of unfettered consumerism from our vision; we must stop panicking and start observing the abundant opportunities that surround us. If the Irish people do not decide the direction of their future now, it will be decided for them.

European ‘tax havens’ face Obama action
President Obama is spearheading a tax shake-up

By Alex Ritson
BBC News
Source

Ireland and the Netherlands are two countries which could fall foul of President Obama’s plan to crackdown on tax havens.

For many years, some of the best-known American companies in the world, including the software giant Microsoft have maintained large operations in European countries with low corporate tax rates.

President Obama claims current US tax law for American corporations has created a system where “you pay lower tax if you create a job in Bangalore, India than if you create a job in Buffalo, New York”.

The argument centres on what are known as “tax deferral rules”, which make it more expensive for American companies to reinvest overseas profits at home than abroad.

Tax rates

Now tax experts are warning that President Obama’s proposals will make many American corporations reconsider their overseas investments – and that this could be very bad news for Ireland and the Netherlands.

Currently, an American company which invests in Ireland pays corporation tax on its profits there of 12.5% to the Irish government.

In the Netherlands, the rate of corporation tax is 25.5%.

As long as the American company never brings the profits home to America, that’s the only tax it will ever have to pay.

Until now, that’s been a big disincentive to ever bringing the profits home, where the corporation tax rate is more than three times that of Ireland’s – at 39.25%.

President Obama sees that as a loophole and believes that by closing it, he will raise an extra $60bn in taxation over the next five years for US government finances.

Different standpoints

John Christensen, from the UK-based pressure group the Tax Justice Network, says action is long overdue.

“This will start to undermine the tax advantages that countries used for booking profits offshore like the Netherlands and Ireland offer to the American companies that use these places.,” he says.

“These countries are tax havens – not in the traditional sense, of offering secretive banking like Switzerland or the Cayman Islands – but in terms of offering facilities for profit shifting to international corporations.

“It’s just the start – and it’s clear that Obama will go a lot further”.

But Charles Cain, the chairman of the CM Skye investment fund, which is based on the Isle of Man says the United States will ultimately be the country that suffers most.

“If Obama’s plans go through, US corporations will find a way to move out of the US altogether, so as to avoid the problems,” he says.

“In so doing, probably Ireland and the Netherlands will be net beneficiaries”.

Recession deepens

The Irish Government told the BBC it would monitor the progress of any legislation carefully, and says it has sent a senior executive to its embassy in Washington to engage with the US administration and Congress.

As the global recession deepens, the US government, is keen to gain a bigger slice of the profits which multinational corporations keep in so-called tax havens around the world in order to pay for spending commitments at home.

But it is likely to win few friends in Ireland or the Netherlands by grouping them with Bermuda as “small, low tax countries” that supposedly account for a disproportionate share of the foreign profits of American companies.

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