Belfast Telegraph

Friday 1 August 2014

Taxing times are ahead in push for competitive edge

The Republic's tax-avoidance scandal has met with a deafening silence from politicians. The Stormont Executive should tread carefully on the issue too, writes Henry McDonald

Google is one of many international companies to have set up in the Republic of Ireland to benefit from low tax
Google is one of many international companies to have set up in the Republic of Ireland to benefit from low tax
A beggar on a Dublin street
A beggar on a Dublin street
Peter Robinson and Martin McGuinness
Peter Robinson and Martin McGuinness

From underneath the shadow of the Republic's holy mountain, Croagh Patrick, to the hyper-trendy, hi-tech quarter of south inner-city Dublin, the mantra remains the same: no hikes in taxes on the world's most famous corporations.

While US senators in Washington DC and tax-justice campaigners in Britain flail global companies like Apple and Google over their taxation avoidance regimes, south of the border there is a quiet but firm consensus about the necessity of keeping the multinationals sweet at all costs.

Beyond the far-left in the Dail, hardly anyone is jumping up and down in moral indignation against the behaviour of corporate behemoths that stayed in Ireland in spite of the recession.

The presence of pharma giants, such as Allergan in Westport, Co Mayo, close to Croagh Patrick, has turned towns into recession-proof bubbles during the last few economically depressed years.

Allergan is the worldwide hub for the production of Botox, which the company is now using to treat illnesses ranging from cerebral palsy to chronic migraine.

In spite of the recession and a banking crisis that almost bankrupted the Irish state, Allergan has kept faith with the Republic.

Part of the reason why Botox continues to be made in Westport is the Republic's low, 12.5% corporation tax, along, of course, with other factors, such as a highly-educated workforce and the country being a gateway into the EU market.

The evidence that the tax rate acts as a magnet for the big global corporations is everywhere. Google, Facebook and Twitter have all chosen Ireland as their European headquarters, moving to the Republic even while the country was mired in recession and forced to go to the IMF and Europe for a multi-billion euro bail-out to keep the state's services running and its employees in jobs.

Apple, which came under sustained criticism for tax chicanery, where some of its operations in the Republic only pay 2% in tax, employs 4,000 workers at its plant in Cork.

These corporate giants are not simply 'gold plate' businesses with a nominal presence and a name above the door of a near-deserted office.

According to the World Bank's 2011 Doing Business Report, Ireland is ranked number one among EU nations for doing business in, while the Economist Intelligence Unit last year rated the Republic as the second most-globalised country in the world.

The figures speak for themselves: eight out of 10 of the top global information communications technlogy companies are based in the Republic; these include Intel, IBM, Hewlett Packard, Microsoft and Apple.

Meanwhile, nine out of the 10 top pharmaceutical and biopharmaceutical corporations use the Republic as their European, or foreign, base, while three of the top five computer gaming companies, such as EA/Bioware, BigFish and Riot Games, have European, or foreign, headquarters in Irish locations.

And more than half the world's leading financial companies and services use Ireland as their EU, or foreign, hub, ranging from Citi and Goldman Sachs to Paypal

The Republic's Industrial Development Authority – the body that has been highly successful for 40-plus years in bringing in the multinationals – says that 500 US corporations employ more than 100,000 people.

US investment in the Republic, at $165bn (£110bn), is greater than all the American investment into Brazil, Russia, China and India combined.

Corporations like Apple are the geese that continued to lay golden eggs even following the property crash, the banking crisis and the spike in unemployment.

All this matters in Northern Ireland because, while the political class in the south turns a blind eye to some of the more morally dubious tax practices of the global corporations, the issue of corporate tax-avoidance is a huge political issue across the UK.

The power-sharing Executive has been pleading with the Treasury since devolution was restored and bedded down for Northern Ireland to be turned into a special tax zone with a corporation taxation rate close to, or parity with, the Republic.

Peter Robinson and Martin McGuinness have argued consistently (and with some justification) that the province cannot compete in terms of attracting foreign direct investment while their taxation-rate remains almost double of that south of the border.

Even before the furore exploded in the United States over Apple's taxation shenanigans in the Republic, David Cameron faced a major political obstacle over granting Robinson and McGuinness's demand for a 12.5% rate in Northern Ireland.

The prime minister realised that Alex Salmond and the SNP's devolved administration in Edinburgh would cry foul if Northern Ireland was granted what Scotland was denied and, in turn, use the disparity of treatment as a weapon in their push for Scottish independence next year.

Now the Treasury, Cameron and the Cabinet have to consider the political danger of creating a tax regime in one region of the UK where the same kind of sweetheart deals for multinationals could emerge.

The prospect of a global corporation using the tax regime and tax breaks in a specially created economic zone must fill financial policymakers with dread.

For the anger and indignation about any corporate tax chicanery in one corner of the UK might generate in the rest of the Union will bolster the argument of the Treasury sceptics against granting what Robinson, McGuinness and the rest of the Stormont Executive desire most in terms of economic policy.

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