# irelands low corporation tax



## joe sod (22 Nov 2005)

Ive noticed that there seems to be more and more articles on this topic with every passing month. I read an article that Microsoft saved $500 million in tax by using its irish offices and operations. These sort of headlines seem to be drawing more and more international attention and intense pressure from europe to raise. Maybe in the long run it may have been a mistake to have such a low corporate tax rate for this precise reason. Maybe an 18 or 20% rate would have been more appropriate as it would still have been low but not low enough to attract this growing international attention. As ireland becomes richer it is going to become harder and harder to justify


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## ubiquitous (22 Nov 2005)

> As ireland becomes richer it is going to become harder and harder to justify



Why, exactly?


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## CoffeeBrew (22 Nov 2005)

And we thought that Microsoft, Google, Ebay etc. were coming here because we Irish are such great workers etc.,  

The New York Times (very influential and widely read in the US) recently wrote:



> The game is simple: a company sends intellectual property to a tax-haven country like Ireland and
> keeps the tax difference on the money it earns.


 
I can't imagine the Germans leaving this issue alone either. They are going to keep going after the issue of tax harmonisation.

But we know how slow the EU moves so I think the more immediate threat is that the US government will examine and attempt to seal the loopholes that allow companies to shift intellectual property offshore for tax reasons.

NYT: "American Ingenuity, Irish Residence"
http://www.nytimes.com/2005/11/17/opinion/17thu2.html?8br


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## gearoidmm (22 Nov 2005)

There is no suggestion that anything that these companies are doing is in any way illegal and even the Times makes the point that they have substantial operations in Ireland with many employees and so have some justification for what they are doing.

Charlie McCreevy recently made the point that tax harmonisation would not do much to improve investment in high tax economies in Europe but would significantly hurt Ireland and other countries in Eastern Europe who will probably adopt Ireland's taxation model.  They will all fight tooth and nail against any such proposal (hopefully).


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## ClubMan (22 Nov 2005)

On a cost benefit analysis I reckon that the benefits accruing (in terms of employment and foreign inward investment etc.) would far outweigh the costs of having a low corporation tax environment. Just because there may be lots of articles in the media about this issue is neither here nor there really.


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## z107 (22 Nov 2005)

Maybe if 'tax harmonisation' is forced apon us, it will be time for Ireland to leave the EU.


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## ClubMan (22 Nov 2005)

Do you really think that's a realistic proposition or are you simply trolling?


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## Sherman (22 Nov 2005)

Isn't taxation policy one of the remaining areas that national governments have a veto over at EU level?

Can't imagine us and the British (and the Eastern European EU members) giving the French and Germans (aka the EU) control over our taxation system.

Fundamental law - money moves to where it is made most welcome. If we 'harmonise' i.e. raise our tax rates, all that lolly will just move somewhere more welcoming, like Dubai.


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## ubiquitous (22 Nov 2005)

Prediction: in 5 years time, Germany, France and Benelux countries will all have Corporation Tax rates of 10-15% or lower - and the EU as a whole, including Ireland, will benefit greatly as a result.


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## CoffeeBrew (22 Nov 2005)

I'm not convinced the only threat to our tax treats for US corporations comes from the EU.

Ireland's tax advantages for the likes of Microsoft are only such as long as US law permits it.

According to the Wall Street Journal describing operations in Ireland, the IRS is fighting some migrations of intellectual property in court and the Treasury Department has issued a draft set of new rules designed to limit the practice.

U.S. policy is likely to change:



> A Washington panel advising the White House on tax policy is now floating a possible new strategy: simply eliminate the taxes on overseas corporate income that motivate firms to move their intellectual property and other assets offshore. Most major U.S. trading partners have already taken this step, giving their firms a competitive edge against American companies.


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## ClubMan (22 Nov 2005)

CoffeeBrew said:
			
		

> According to the Wall Street Journal describing operations in Ireland, the IRS is fighting some migrations of intellectual property in court and the Treasury Department has issued a draft set of new rules designed to limit the practice.


Free market capitalism - _Uncle Sam_ can't allow that now can he...!?


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## z107 (22 Nov 2005)

> Do you really think that's a realistic proposition or are you simply trolling?


Well maybe not the EU, but certainly the eurozone. Ireland relies heavily on foreign investment. If we have the same corporation tax as everyone else, this investment will go elsewhere, maybe to a country with a better transport infrastructure, for example.

Seems a reasonble proposition to me. What advantages will be left for Ireland to remain in the eurozone?



> Free market capitalism - _Uncle Sam_ can't allow that now can he...!?



Europe aren't exactly saints in this regard either.


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## dam099 (22 Nov 2005)

umop3p!sdn said:
			
		

> Well maybe not the EU, but certainly the eurozone. Ireland relies heavily on foreign investment. If we have the same corporation tax as everyone else, this investment will go elsewhere, maybe to a country with a better transport infrastructure, for example.
> 
> Seems a reasonble proposition to me. What advantages will be left for Ireland to remain in the eurozone?


 
What exactly has our membership of the Euro got to do with tax harmonisation? This is an issue as a result of our membership of the EU not the Euro. France and Germany are just as interested in harmonising tax rates of the accession countries which are not even members of the Euro yet. 

Anyway as long as the veto remains they can huff and puff all they like but they won't be able to effect significant change.


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## z107 (22 Nov 2005)

> This is an issue as a result of our membership of the EU not the Euro.



I didn't realise that, thanks for informing me.


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## Duplex (22 Nov 2005)

If America goes into recession watch the Senate use the carrot and stick approach to beat American corporations back to the US, tax harmonisation in the EU is more likely to come about as a result of a race to the bottom.


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## stuart (23 Nov 2005)

CoffeeBrew said:
			
		

> According to the Wall Street Journal describing operations in Ireland, the IRS is fighting some migrations of intellectual property in court and the Treasury Department has issued a draft set of new rules designed to limit the practice.


 
Since the Irish governemnt have introduced tax breaks for R&D they obviously have identified this problem

This is encouraging these companies to develop the intellectual property outside the US and therefore not at all under the remit of the IRS 
Unless they plan on revoking/altering all double tax treaties

The IRS may well challenge the movement of existing assets but future assets will not ever be located on owned in the US and therefore out of their jurisdiction

This not unusual as most thrid world/developing nations have some forms of exempt income allowed by the most of of the G7 countries
It is allowed so as to keep these smaller nations in check
Look at captive insurance companies in the Caribbean

Ireland is probably the least contenious country in Europe with respect to the amercians and that is why they have allowed the current practice to develop
The Irish corporate tax areas has been developed to take advantage of this

Here is a summay of the tax changes in last year's budget re the same

[broken link removed]

stuart@buyingtolet.ie


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## Sherman (23 Nov 2005)

A race to which bottom? A race which ends in zero corporate tax rates but booming employment, with lots of employees paying higher rate taxes, and not claiming dole? If you consider Ireland as leading the race to the bottom in terms of taxation, then I only wish the rest of Europe would join the race.


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## Duplex (23 Nov 2005)

If corporation tax rates are similar in competing economies other competative differentials will come into play, i.e. wage, accommodation, transport costs, infrastructure provision.  The nature of the market is to drive down costs so as to maximise profit.  The idea behind the global economy is to encourage open competition; an intended side effect is economic interdependence resulting in mutual security.   Labour market arbitrage will be the great leveller in the coming decades as greater numbers of low cost E Europeans, Chinese and Indians compete with workers in established economies.


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## CoffeeBrew (23 Nov 2005)

To see why the US government and media are taking such an interest in Irish operations, you just have to look at the money involved.

The Irish Times is reporting this morning that the US Internal Revenue Service (IRS) is now seeking almost half a billion euro in back tax from Synopsys Inc - a US multinational - related to its operations in Ireland.

In this case the activity getting attention is transfer pricing and not intellectual property shift as has been discussed earlier.


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## z102 (23 Nov 2005)

The Eu is strong enough to push minor members to the wall. Since states as France,Germany and not to forget the Benelux  can't afford their own social politics no more why should they take care of Irish give - away politics: Today the EU parliament passed a legislation that allows any EU memberstate company to set up a "service" business in any EU memberstate. 
Before today only the Irish state allowed for that....
Now it is competition, and sure, where the better infra structure is business goes. IT companys would go to countrys where they find multilingual workers.Not where they have to import them. Esp. if these workers can take the metro at 24h per day to get to work. And where these workers will accept wages that will cover the costs of living. Incl. free schools and creches and so on. And not new uniforms for the children...


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## Sherman (24 Nov 2005)

I disagree with you Duplex.

Labour costs will absolutely decimate manufacturing etc. in the Western world - however, manufacturing only accounts for around 19.7% of US GDP - services makes up over 79% ([broken link removed]). Therefore labour-based arbitrage will have a far more limited impact than you imagine.


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## stuart (24 Nov 2005)

CoffeeBrew said:
			
		

> In this case the activity getting attention is transfer pricing and not intellectual property shift as has been discussed earlier.


 
Transfer pricing is an issue for more than the IRS

Look at Toyota and all the flack they are getting from everywhere

The problem with this is again there are loads of legitimate reasons around these issues


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## joe sod (27 Nov 2005)

"Labour costs will absolutely decimate manufacturing etc. in the Western world - however, manufacturing only accounts for around 19.7% of US GDP - services makes up over 79% ([broken link removed]). Therefore labour-based arbitrage will have a far more limited impact than you imagine."

Last week i was watching a documrntary on the american media on this very topic. They were using a typical midwestern town which in the eighties most of the town was employed in electronics manufacturing which was relatively well payed. However the electronics is gone but unemployment is still low because the population is by and large working in services. The problem is that wages are low in the services industry compared to manufacturing in the eighties. Peoples  lfestyle expectations have gone up but their wages havn't kept up with their expectations, the difference is being met by debt. alot of services jobs are not sustainable in an environment of rising interest rates and reduced consumer spending


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## CoffeeBrew (6 Dec 2005)

Big tax case coming up:



> A LANDMARK European court case could greatly reduce Ireland’s ability to attract foreign direct investment
> .
> .
> If the ECJ decides that the Inland Revenue were right in pursuing Cadbury, the case could have
> ...


 
http://www.finfacts.ie/news/examiner.htm


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## Duplex (6 Dec 2005)

I'll watch that case Coffeebrew thanks, I wonder why the UK Inland Revenue took so long to take action?


This is worth a read;



http://www.finfacts.com/irelandbusinessnews/publish/article_10004162.shtml


A damming report on the ossification of the Irish economy, but is this doom mongering or a warning that should be headed by government and society.






> Intel, Dell, Pfizer and HP are foreign-owned manufacturing firms in Ireland responsible for 90% of Irish exports. An Irish State-funded report predicts that most of these enterprises will have moved to low-cost economies by 2025. Growth in exports from the dominant indigenous enterprises will remain relatively low.
> 
> These powerhouses are the key drivers of the Irish economy.
> · 90% of industrial exports are made by foreign owned firms
> ...





An Irish State-funded report predicts that most of these enterprises will have moved to low-cost economies by 2025!!!!!!!!!!




> _*Thus, more than 42 per cent of the private non-farm employment increase of the past five years is accounted for directly by construction. This is before including rising employment in construction-related activities such as building suppliers, materials manufacturers, estate agents, mortgage brokers, etc. If we allowed for these, we would comfortably account for more than half of the private sector employment gains since 2000, and that's before speaking about multiplier effects.
> 
> *_


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## CoffeeBrew (13 Dec 2005)

Two top-notch technical companies announced jobs in Ireland today.

Seagate adds to its Northern Irish manufacturing base. Google to its Dublin HQ.

Must admit I was disappointed to see the jobs list for the Google set up. It seems mainly sales, financial and legal? 

Doesn't look like any of the brilliant computer research that Google is so famous for is coming here - the sort of stuff that can lead to ongoing and long term benefits.

Great to see the jobs but is there a slight whiff of tax-haven convenience again ?

http://www.rte.ie/business/2005/1213/google.html


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## daveirl (13 Dec 2005)

CoffeeBrew said:
			
		

> Doesn't look like any of the brilliant computer research that Google is so famous for is coming here - the sort of stuff that can lead to ongoing and long term benefits.


Google is mainly an advertising company these days! Hence the profile of the jobs.


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## CoffeeBrew (14 Dec 2005)

daveirl said:
			
		

> Google is mainly an advertising company these days! Hence the profile of the jobs.


 
Behind that simple Google search screen there is a lot of very advanced computer science. 

Take a look at some of the research publications from the staff at the Google engineering group:

[broken link removed]

A while back there was some talk of Google opening an Irish R&D base but I haven't seen anything in the latest press reports that this is going to happen.

Ireland can offer multinationals good opportunities for tax avoidance (I didn't say evasion!) in their home countries and that seems to be a big attraction for many of them.


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