Cantillon: Two sides to crack down on corporate tax

There is an interesting dynamic in the debate on the impact on Ireland if measures to crack down on multinational tax avoidance are introduced.

On one side of the equation, Ireland could do well. This is because big multinationals could move some of their operations away from tax havens such as Bermuda and the Cayman Islands, and this could benefit Ireland.

However, there is a potential flip side too. As pointed out in a report commissioned by Chartered Accountants Ireland and reported here on Wednesday, there is a risk of more tax being levied where products are actually sold, rather than in Ireland where they are made. This would threaten corporation tax receipts, particularly from the pharma sector.

Ireland, as a low-tax jurisdiction, is thus “stuck in the middle”, hoping to win business from tax havens but at risk of losing some tax, too, to bigger economies.

The most likely movement from tax havens is of intellectual property rights, more of which could be housed in future in Ireland. This might not boost tax much in the short term, as there would be significant write-offs involved in bringing these assets here. However, there is speculation big companies moving intellectual property rights to Ireland was one factor in the recent rise in corporation tax.

On the other side, the Chartered Accountants Ireland report, written by UCC economist Seamus Coffey, looks at another possible fall-out of the OECD and EU moves to cut down on tax avoidance. The report warns of the risk that the decision on where economic “substance” is – to use the jargon – could involve tax payments moving from the Irish exchequer to those of France, Germany and Italy, where most products are sold.

For Irish politicians, it is not enough to just maintain the mantra that we have an open and transparent tax system and the 12.5 per cent rate is here to stay. This may be true, but there is an international scramble coming up to try to grab tax revenue from multinationals, which may increase a bit. Despite the recent favourable trend, there are threats to Ireland here as well as opportunities.