Dáil Éireann – 23rd March 2011

The 12.5% rate of tax is and has long been a cornerstone of Irish industrial policy, and I urge the Government, in the strongest possible terms, to withstand entreaties from our partners in Europe on this issue. My very real fear is that any movement on the rate, even a half a percentage point, would send a hugely detrimental message to the inward investment community.

What any investor craves is certainty. Any movement whatsoever on the rate, would remove this certainty. From an investor perspective, once the rate moves once, even if only marginally, there is nothing to prevent it moving again. The resulting uncertainty and lack of confidence would be fatal to attempts to attract investment, create employment and grow the economy.

There is a very good reason that, at the time of the introduction of the 12.5% tax rate, no sunset date was announced. This is not an incentivised rate. It is not a tax “holiday” rate. This is simply the standard rate of corporation tax in Ireland. The message was clear and unambiguous – this is how Ireland is choosing to do business. The 12.5% tax rate has the blessing of the OECD (and was introduced with the blessing and agreement of the EU), and does not discriminate based on ownership, industry, or activities. The only requirement is that there is an active trade. A similarly clear and unambiguous message now needs to be issued by the Government, and I acknowledge and applaud recent statements in this regard.

As anyone who is involved in the foreign direct investment sector is well aware, tax is only one of a variety of factors that is taken into account by foreign multinationals when developing and implementing international expansion plans.

Having a low tax rate for corporate profits does not win projects or investment. It is well known that in many other jurisdictions it is possible to get tax holidays and not pay any corporate tax whatsoever. Having a low rate merely makes Ireland competitive and “gets us to the table”. What wins investment is the flexible and open economy, the availability of skilled labour, the productivity and industry of our people. Having worked so hard to attract investment over the years, Ireland is, in many respects, in an enviable position. It has a proven track record of providing a stable and reliable location from which to do business. It is the only English speaking member of the Eurozone. It is home to marquee names, household brands, a factor that attracts interest, and oftentimes further investment from other players and competitors. In one fell swoop – this work would be undone by even a seemingly insignificant change to the corporate tax rate.

Typically, for the types of investment that it secures, Ireland competes primarily with Switzerland and Singapore. It is clear that any deterioration in Ireland’s competitiveness vis a vis these jurisdictions would likely result in investment being lost by the EU, as well as by Ireland. The prospect that France and Germany would reap an inward investment windfall if Ireland were to even double its corporate tax rate is not based in reality, and it is unlikely that even France or Germany would contend otherwise. The primary beneficiaries would likely be non-EU countries.

We received a little more clarity on the next line of attack on the Irish tax system last week with the European Commission proposal and draft Directive for a “Common Consolidated Corporate Tax System”. Although still a proposal, and an early stage one at that, it is one that requires careful monitoring. What this reminds me of is the old nursery rhyme about the spider and the fly “oh come into my parlour said the spider to the fly”, but we all know what happened to the fly, he caught in the web and I fear that this amendment by the Government will ensure that Ireland is going to wind up like the fly.

What the CCCTB seeks to do is to reallocate profits earned by companies that operate in the “CCCTB territories” according to various factors such as physical assets, sales, and payroll/employees. Interestingly from an Irish perspective, there is no allocation based on intangible assets, placing companies that have invested significantly on the creation and exploitation of intellectual property at a huge disadvantage. The introduction of the CCCTB is clearly an attempt to take the “rate” out of the equation – by allocating profits based on a new system, one that is completely incompatible with existing tax and accounting principles and with the hundreds of the tax treaties currently in existence. These profits would then be taxed at the tax rate applicable in these territories. This proposal should be resisted in the strongest way possible and the terms of the Governments’ amendment in this regard is very worrying.

Although any reduction in the interest rate being charged by the EU and IMF is of course welcome, and the Taoiseach and the Government is to be applauded if this result can be achieved, it is imperative that this is not achieved at any price. The 12.5% corporate tax rate and no CCCTB for Ireland is a line in the sand that should not be crossed for any price, and I encourage and implore the Government to continue the policy of previous administrations in this regard and to state that the Irish corporate tax rate is the prerogative of the Irish people, and that there is no plan to change this at any future point. If the price of an interest rate cut is an increase in the corporate tax rate, for my part, there will be no political point scoring if the Government does not achieve its aim of a reduction in the interest rate/terms of the funding from the EU/IMF. Such a short-sighted approach would undo decades of endeavour. The stakes are too high, this issue, far too important.