Wednesday, May 18, 2011

To keep the Irish Corporate Tax, or not to keep?

The Irish corporate taxation system is one important asset for the country. The country's economy is based on it and gives it an advantage, by making it very attractive for overseas multinationals.

Ireland is an English-speaking European Union member with an open economy, plus it has lower corporate tax rates and so it has managed to become from one of the poorest nations in Europe, to one of the richest.

But the country's taxation system often brings Ireland under fire, from some of its European partners that believe that it gives an unfair advantage to the country. They would prefer to create a harmonized taxation system across the EU. Many in USA also believe that it harms their country's economy, as it is mainly American companies that take advantage of the Irish corporate tax system.

If we want to be honest about it, low corporate taxes serve mainly the multinational corporations. Though it boosts the economy of Ireland by the exports of goods such as lap-tops, it creates few job positions and the companies contribute little to the Irish state. Most of the income earned is taken out of the Irish economy and shipped back to the multinational's country of origin.

A lot of the companies are so-called "ghost" companies that only register Ireland as their base, to avoid paying high taxes back home. The rent near empty buildings and they employ very little staff, if any. The reason why the Irish public is so protective of them, is because their Government and media are portraying the taxation system as an important national asset.

Of course Ireland's taxation system does offer an advantage to the country and contributes to its economy. But if they actually developed industries and stable economic factors, their country's economy would benefit more. Multinationals are concerned only about their profit. They may locate their bases in your country for a period of time, only to move them a few years later when they find a country that is more attractive to them.

Instead in relying on pocket money from the corporations and bow to their demands, wouldn't it better to be able to rely on exports or any other "real" economy type? The problem is that it is very difficult for a small country to achieve such thing, especially when it lacks the infrastructure and the funds to do so.

Also the Irish political elite serves the global capitalist elites. They gave away all rights of the Irish oil and gas resources, that could have given the country a more stable income, which could then be used as investment to diversify the Irish economy.

What should happen in Europe is further economic and political integration.The Germans and the French who are the main critics of Ireland, should not ask the Irish to abolish their corporate tax rate unless they change the way they do business too.

Ireland and all small countries are very susceptible to the economic or political influence of their big neighbors. So they must strive to make deals and business with multinationals to attract capita, in order to maintain their sovereignty.

When Ireland gained its independence from Britain, it was left in a very bad financial status. They went from boom to bust and they remained dependent to the British economy for decades to come. Even the "Irish" pound was pegged to the British, linking Ireland's economy to Britain's.

If we want to secure small nation's financial future and harmonize Europe's economy and taxation, then it is the richer countries that must make the sacrifice and reform their economies first. If they monopolize all industrial and financial development in the continent, then smaller states are forced to come up with a taxation system that will attract foreign multinationals.

Or even worse, they will have to become tax havens and invest in their banking sector. If we could establish a European Investment Bank or Fund, together with a EU body that would coordinate these investments, then we could divert cash where is needed to create new jobs and industries across Europe.

In that way all countries would benefit and they would have a secure source of investment, that would spread equally throughout the Union. When we are allowing small European nations to seek and strike deals with multinationals, we are actually forcing them to compromise some of their sovereignty for them. They will have to pass certain laws that will allow or attract the corporations to invest, in order to maintain their position as a favorite investment hub.

So these nations are not entirely sovereign anymore and in a European context it allows third parties or countries, to have access and be able to influence their laws and of course in extend many EU laws.So how can we have an independent or unanimous agreement on EU policy, when each state is trying to protect and promote their interests. But in Ireland's and many other smaller states' case, these are the interests of the multinationals.

When Ireland agrees with American corporate companies to establish branches in its soil for example, it is relying on America to keep finding Ireland a profitable and convenient place for them to invest. To do that the Americans will place some demands that Ireland must defend and promote, sometimes even against EU law and regulations. No surprise then why some countries like Britain always wish to block or opt out of EU regulations.

And it is not just Ireland that must find as solution to its economic problem, the lowering of its tax rates for multinational companies. Many countries across the EU are doing the same and even France itself has a peculiar taxation system that favors foreign investment. 

Wouldn't it better to set up European owned companies, either large or SMEs that will be funded by this new European Investment Fund, in many different European countries? Thus helping European businessmen, developers or inventors from all over the continent to keep creating jobs, promoting stability and equal opportunities for all European citizens.

What good is to point the finger to each other like France and Germany are doing to the Irish, if they do not give them any alternative. Ireland now more than ever needs to find and keep any resources it can to save their economy. If the scrap their lower tax rate, they will lose the investments from the multinationals and with no alternative solution from their European partners, their economy will be in deeper trouble.

If the rich European nations do not want to share with the Irish and include them in their industrial and economic development, then they will have to allow them to rely on foreign investment and so to keep their low corporate tax rates. 

The solution to this problem lies on a European level. No country should be pushed to change its taxation system if its partners are not willing to do the same or support each other. If Europeans want to harmonize the continent's tax rates, as it should happen at some stage, then they will have to compensate the Irish by creating jobs here and fill the gap. Otherwise they will forever have to sustain the Irish economy with subsidies and further bail outs.

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