03/08/21

IRELAND: Central banker says country can cope with global corporate tax.

As published on politico.eu, Monday 2 August, 2021.

FRANKFURT — The Irish economy is unlikely to suffer significantly if a global minimum corporate tax is adopted, according to the country’s central bank chief.

Ireland boasts one of the lowest corporate tax rates in Europe, at 12.5 percent — enticing many global corporations to set up shop and report profits there. This has also put Dublin on a collision course with a U.S. proposal, backed by 130 countries, to establish a global minimum tax rate of 15 percent.

Estonia and Hungary are the only other EU holdouts resisting the deal.

"The change in corporation tax rate certainly will have some impact [on the Irish economy]," Irish Central Bank Governor Gabriel Makhlouf told POLITICO. "But is it something that I, sitting here as the governor of central bank, worry about in a significant way? That would be an exaggeration."

Ireland is often criticized for letting companies — including Apple, Google and Pfizer — book profits there instead of in their home countries or where their economic activity occurs. But as Makhlouf sees it, Ireland’s attraction to major corporations goes far beyond its tax haven status.

"Taxes can be changed fairly regularly," said Makhlouf, who also sits on the European Central Bank's 25-member Governing Council. "So [a firm's] judgments are made based on the confidence ... in the quality of the labor force, the quality of the government." And once companies have been there for decades, they're unlikely to leave, he added.

Ireland also boasts a long history of hosting multinationals, "especially in pharmaceuticals and in technology," he said. "You only need to just travel around the country to see the real economic activity ... This isn't an artificial thing."

Ireland's tax laws have drawn the ire of its EU partners, who charge that the low rates siphon tax revenue from their coffers. For example, Apple’s Irish arm booked more than €35 billion in pre-tax profits in 2019 from intellectual property rights housed in the country, which breaks down to almost €6 million for each of its 6,000 employees there. That practice lets it book far smaller profits in countries with higher tax rates.

Still, Makhlouf cautioned, it's premature to project how badly Ireland may eventually be hit by a global tax.

"Everything about tax is in the detail," he said. "It really depends on exactly what is finally agreed." He pointed out that reports of a deal were quickly followed by news of potential exemptions for particular sectors in particular countries.

He also emphasized that negotiating positions can change, noting that some countries had first floated a common rate of 21 percent before settling on 15 percent.

The comments of the chief of Ireland's central bank — which is wholly independent from the government — stand in contrast to the position of Irish political leaders, who continue to oppose the introduction of the global minimum tax rate on grounds that tax competition is a fair way of attracting foreign investment.