Tax Is Back
In recent weeks the debate around the Irish tax system has re-emerged on the global stage, following the latest agreement amongst OECD countries to align global corporate taxation. The Irish Government represented by Minister for Finance Paschal Donohoe rejected the deal arguing that taxation falls under Irish sovereignty. Ireland found itself in a group of only nine out of 139 countries to oppose the agreement.
What did the OECD countries actually agree on? Their two key goals are to partially tax companies in countries where their profits are earned, and to introduce a global minimum corporate tax rate of 15%.
It is important to highlight that no final deal has been struck yet, and some believe this to be the main reason why Ireland has so far rejected the agreement and that the Irish government will only agree to it once it is clear what the final deal will actually look like. Maybe Ireland would have fared better by joining the group early and actively shaping the deal from within.
In the past, Ireland rejected EU proposals for further tax alignment across the union, insisting that a deal should be struck at OECD level. Now that an agreement has arrived (probably sooner than expected), Ireland opposed it, insisting that the 12.5 % tax rate was an integral part of Irish fiscal and economic policy, thereby guaranteeing Irish wealth.
There is no doubt that the Irish tax system has been crucial in Ireland’s economic boom of the last 30 years and more. But it might be time to move on and shift the focus to other key metrics that create wealth in Ireland, such as high-standard public services, including infrastructure, education, healthcare, and housing.
Considering that the potential tax increase is only one of 2.5 percentage points, it is unlikely that companies who have grown strong roots in Ireland will leave Ireland only because of this minor increase. Ireland would still offer one of the lowest corporate tax rates in the EU as many of the bigger countries would not reduce their much higher rates as they require that money to finance their public services.
Besides, the pandemic has shown that the Irish state as well will need to increase spending on public services such as infrastructure, education, healthcare, and housing to fix the most pressing issues in Ireland. So, a 15% minimum tax rate should be welcomed as an option for Ireland to widen its tax base.
Apart from its low corporate tax rates, Ireland has profited just as much from its EU membership, especially following the fall of the Berlin wall and the end of the Eastern bloc. Ireland has transformed into one of the best-connected economies in the world and has earned a high reputation for its openness, reliability, and stability but the rejection of the agreement risks damaging that reputation.
This comes on top of the reputational damage which Ireland suffered from enabling companies to avoid tax through a set of more than questionable taxation practices, although most of those loopholes have now been closed.
At a time when Ireland has a seat at the UN Security Council we should lead by example. Ireland enables tax avoidance on a massive global scale. Tax evasion hurts people and societies, it is not a crime without victims. It also affects poorer, developing countries which Ireland on the other hand supports with development aid monies.
Volt believes in fair taxation as a foundation for a fair society. It is important that companies meet their responsibility by paying their fair share towards this fair society.
Other European countries that have a similar reputation to Ireland backed the agreement, most notably the Netherlands. In the Netherlands, Volt is also campaigning for putting an end to the Dutch tax system that enables tax avoidance.
Volt Ireland believes that closer tax alignment both within the EU and on a global level is a necessary tool to fight inequality by giving countries the financial means to invest in their societies.
It is often said that Ireland has more to offer than sweetheart tax deals: education, EU membership, political stability, English native speakers, strong business networks with the US and the UK. We should be more self-confident that companies want to do business here for other reasons than for paying less tax.
This is why we need to make sure that all these drivers of economic growth get properly funded to create fair and equal opportunities for everybody and to make Ireland a better place to live. Eventually it is people who drive inventions and hence economic growth, not tax.