THE TAX treatment of transfer pricing is not something that impinges on the consciousness of the average citizen. The fact that it is seen as one of the standout measures in the Finance Bill unveiled by the Minister for Finance yesterday should be all the confirmation one needs that the annual bill giving effect to the Budget is the legislative equivalent of prozac. But that would be a mistake.
Taken together, the jumble of similar measures included in the Bill amounts to the Government’s policy for maintaining and hopefully enhancing the attractiveness of Ireland as a location for job-creating inward investment. This has once again assumed a high priority with the dawning realisation that export-led growth, such as that we experienced in the early years of the Celtic Tiger, is the best hope for reviving the economy.
Our low corporate tax regime is one of the main planks of our strategy for attracting multinationals into Ireland. And transfer pricing is one of the mechanisms by which multinationals maximise the portion of their global profits they can declare in Ireland to avail of the tax rate. Yesterday’s concession to follow international best practice - as determined by the Organisation for Economic Co-operation and Development - in respect of transfer pricing represents a serious blow.
It also illustrates the truism that there is no such thing as a free lunch. It was too much to hope that other developed nations would let the Irish exchequer’s gain continue to be their loss. Some move in this regard has been long overdue.
The more pertinent point about yesterday’s Bill is what measures have been introduced to enhance Ireland’s attractiveness in other ways. With this in mind it is encouraging to see measures aimed at making Ireland an attractive location for Islamic finance.
A number of issues raised by representatives of multinational companies already here, such as the taxation of senior executives and tax relief on royalties, have also been addressed. As with most of the measures aimed at attracting inward investment these are in effect tax breaks and will involve the exchequer forgoing tax, albeit on activities that might otherwise not have taken place.
Without a doubt they will have unintended consequences and almost certainly some of the country’s finest accounting and legal brains are already examining the Bill looking for loopholes to be exploited for purposes other than those the Government has in mind.
Such risks are inherent in any tax-based incentive, but in the current climate it is hard to argue that it is not a risk worth taking.
The Government has yet to come forward with anything representing a comprehensive job creation plan. Great store has been set in the notion that the bailed out banks will start lending to business of their own volition, but the penny is now starting to drop in that regard. Set against such a policy vacuum, the modest measures announced in yesterday’s Finance Bill are to be welcomed.