Government vows to vigorously defend tax code but will it be enough

Low corporation tax, foreign direct investment, job creation – a virtuous circle, if ever there was one.

It was this nexus that so effectively nurtured the economy in the 1990s before it was swallowed whole by the property whale. The Government knows that a failure in any one of these areas would sink it politically.

Efforts by the Organisation for Economic Co-operation and Development to reform the international tax system – aimed primarily at closing off loopholes that allow companies to pay little or no tax by aggressively exploiting differences between regimes – are likely to affect Ireland one way or another.

Last week US president Barack Obama castigated companies for "gaming the system" following a series of high-profile tax inversion deals, most notably Abbvie's acquisition of Shire.

Significantly, the only country Obama referenced, in terms of a destination for tax avoidance, was Ireland. Into this mix comes the Government’s latest policy document on its foreign direct investment strategy. Sprinkled throughout it are references to the State’s competitive corporation tax regime and an insistence that it will be vigorously defended.

The document admits that possible changes to the international tax code pose a serious challenge, but it says they could also be an opportunity for Ireland if they provide stability and predictability for potential investors. It goes on to say that the next phase of our foreign direct investment campaign should be based on portraying Ireland as a great place to live, as a centre for technology and as a place with a skilled workforce.

These are important, but they could hardly be said to rival a low tax rate.

Unveiling the policy document yesterday, Minister for Jobs Richard Bruton vowed to stand firm against international pressure to change the State's tax code, saying the Government had vehemently defended it at the height of the financial crisis, when it was at the mercy of international creditors.

He certainly feels Ireland has won the argument in Brussels, insisting "Europe has recognised that competing on taxes is here to stay". The question remains as to whether Ireland can face down the OECD and the US on the same issue.