Will Ireland's corporation tax survive?

#649

Paschal the rascal giving the heads up

Donohoe expecting big changes in global corporation tax rule

The Minister for Finance says there is going to be a big shakeup in global corporation tax rules over the next 18 months.

Paschal Donohoe said he is expecting a renewed push by the US and European governments to change the way digital companies are taxed.

With many of the leading US digital companies resident in Ireland for international tax purposes, Mr Donohoe said it is important that Ireland does not get caught in a tax dispute that could impact on trade and investment decisions by multinational companies.

Mr Donohoe made his comments at the Global Tax Policy Conference at Dublin Castle today.

https://www.rte.ie/news/business/2019/0523/1051208-donohoe-tax-conference/

#650

https://www.esr.ie/article/view/1184

Aggressive Tax Planning Practices and Inward-FDI Implications for Ireland of the New US Corporate Tax Regime

Abstract

National corporate tax systems interact with each other in complex ways. Interactions with the US tax system are particularly important for Ireland given the significance of the US MNC presence in the Irish economy. The US system changed dramatically with the passage of the Trump administration’s Tax Cuts and Jobs Act. This paper outlines the history of corporate tax policy in the two jurisdictions and how the systems interacted up to the time of the recent changes. It also details the type of aggressive tax planning practices that grew up around the location of intellectual property assets. The likely implications of the new US tax regime for intellectual property location and inward FDI in Ireland are then assessed.

CONCLUSIONS

Ireland, it is concluded, is unlikely to be affected adversely by the recent dramatic changes to the US corporate tax system. This arises for the following reasons, which may be broken down into issues pertaining to production and IP location. In terms of production, the changes are likely to lead to increased real (plant and machinery) investment in Europe as well as in the US, and Ireland will be further advantaged relative to competitor EU locations. The tax changes offer little incentive to ‘reonshore’ or shift existing production back to the US. In terms of IP location, even if the US export subsidy for IP-intensive goods and services is deemed compatible with WTO rules, the margin associated with locating IP assets in Ireland will not disappear. Irish-located IP, furthermore, can be used to blend away the tax disadvantages of choosing to locate some IP or global intangible income close to where R&D is undertaken in higher-tax European economies.

The many uncertainties surrounding the sustainability and permanence of the
new regime, and the fact that key details remain to be clarified, will ensure however
that any major structural changes to investment behaviour will occur only over the
medium term.

How do these conclusions relate to reports of a recent sharp reversal in US FDI inflows to Ireland, as well as to Luxembourg and the Netherlands, which UNCTAD (2018b, 2019) ascribes to the tax changes? The background analysis in the reports reveals that these outflows reflect the repatriation of profits formerly held offshore for deferral purposes. These financial flows, as is widely recognised, are of limited relevance to the real economy.

The Central Bank (2019) remarks, for example, that:
Since the introduction of the US tax reform, Ireland’s reported holdings of US treasuries have declined by approximately €50 billion. This is consistent with the repatriation of retained earnings by US MNEs’ subsidiaries, as the firms may have sold US treasuries in order to repatriate funds to the US before paying dividends or engaging in share buybacks… The direct economic effects of these transactions on underlying Irish economic activity are likely to be limited.

An issue not considered in the present paper is whether and to what extent the tax rates of high-tax European economies might be adjusted downwards in the coming years in response to the US initiative.

#651

Jeremy Hunt, speaking on the Andrew Marr show, has said he intends to lower the UK corporation tax rate to match Ireland’s.

#652

Patrick Honohan, former Governor of the Central Bank, warns of a Corporation Tax supernova (and Oasis will reunite to bring us an anthem for the ages!)
https://www.irishtimes.com/business/economy/billions-of-euro-in-corporation-tax-could-disappear-like-a-supernova-explosion-1.4011293

He said this eminently quotable remark on RTE’s main business programme but the only report is on the IT. The rest of our business media are full of stories about his successor and some nonsense about a non-hacking in NZ.

When our Corporation Tax bubble bursts, we’ll have no-one to bail us out. Our EU partners will be overcome with schadenfreude.

#653

Modelling Recent Developments in Corporation Tax

https://www.gov.ie/en/publication/29cb12-modelling-recent-developments-in-corporation-tax/

This paper takes a detailed look at CT developments, from both a micro- and a macro-economic perspective with several important findings arising from a detailed modelling study. In particular, the marked rise in CT receipts and corporate profitability since 2014 is highlighted.

#654


UK analysis of Ireland’s CT vulnerability

#655


Is this the beginning of the end?

#657

Timed nicely to bury this new considering the night that’s in it, wonder did they consult with gov.ie in any manner. :whistle:

Does anyone want to wager the hit/windfall to Ireland Inc & Co Ltd? :ninja: If so, click here for the Google tax thread.

#658

When Fine Gael came to power in 2011, Irish GNI* (the more real measure of the economy) was 26.03 percent lower than the Irish GDP, in nominal terms. This, effectively, meant that tax shenanigans of the multinational corporations were de facto running at at least 26% of the total Irish economic activity.

Fine Gael proceeded to unleash and/or promise major tax reforms aimed at reducing these activities that (as 2014 Budget, released in October 2013 claimed, were harmful to Ireland’s reputation internationally. The Government ‘closed’ the most notorious tax avoidance scheme, the Double Irish, in 2014, and introduced a major new ‘innovation’, known as the Knowledge Development Box (aka, replacement for the egregious Double Irish) in 2016. In September 2018, the Government published an ambitious Roadmap on Corporation Tax Reform (an aspirational document aiming to appease US and European critics of Ireland’s tax avoidance platform).

So one would expect that the gap between Irish GNI* and GDP should fall in size, as Ireland was cautiously being brought into the 21st century by the FG government. Well, by the time the clocks chimed the end of 2018, Irish GNI* was 39.06 percent below the Irish GDP. The gap did not close, but instead blew up.

Over the tenure of FG in office, the gap rose more than 50 percent!

#659


Jeez…that didn’t take long. Who’s next?

#660

That’s a shot across the bow…

#661
#662

Ciu bono, domestically?

Ireland has lots of actual pharma and bio-pharma plants, which actually make lots of drugs that are exported, same for medical devices - are these threatened? The stuff is actually made here.

Setting up a plant like this is not easy, the plant equipment is a sunk cost, often embedded in concrete or made on site - this kind of stuff cannot be boxed and shipped to Vietnam like Dell did in Limerick ten years ago. Same for Intel, Analog in the semiconductor sector WRT to plant and actually making stuff here.

Lets take people (employees), as an asset - finding the staff, training them and retaining them is a real headache, retention cycles lengthen over time as people settle into jobs they like or tolerate. I’m being serious here - the reason Pharma pay in the top quartile is retention - sourcing and training people in regulated industries like this is a headache wherever you are, it’s anecdotally easier here - higher proportion of people who question authority when told to deviate from a process or procedure.

Is the real tsunami going to be among the brass plate operations in Edwardian Dublin, affecting the professional services sector most - i.e. solicitors and accountants, tax managers, audit teams from the big four?