by Garrett Dempsey

Created on: May 30, 2011

The Republic of Ireland has been very successful at positioning itself as a low-tax location. The previous 10% manufacturing rate was somewhat vague and involved obscure transfer pricing and perhaps didn't lead to real or long-term job creation. However, the current 12.5% rate is robust and needs 'substance' behind the business - it can't be just a virtual company or brass plate and there are now transfer pricing rules in place.

Multinationals do create employment now and also bring large amounts of treasury/capital into Ireland.

Multinationals pay significant VAT and employment taxes so their effective tax-rate is not just the 12.5% headline rate. They also pay significiant county taxes and utility bills into the Irish economy plus support a multitude of contractors and other service/supplier companies.

The headline 12.5% rate seems to attract a lot of media attention. It's the effective tax rate that should get attention and Germany/France are very clever with grants and subsidies and how their taxes are calculated which bring their effective rates much lower. Furthermore, they often have local/regional tax variables that again don't get highlighted (eg in France, there are generous subsides for R&D companies in specified R&D centres such as Lyons which attract local/regional tax credits).

Perhaps there should be some gradual drift towards a band or range of Corp tax rates across the EU with the higher rated countries drifting down towards, say 25% and the lower ones drifting up to maybe 15%.

The media in this area always compare IRL with Germany/France but what they forget is that it's actually healthy for the EU to have 1 or 2 lower tax environments because if they didn't have them, then mutlinationals (mainly US) would probably go to Switzerland or Singapore so the EU would lose all that business. Hong Kong is also aggressively trying to become the financial services centre of Asia vying with New York and London as the leading global finance services location.

Of course, the CCCTB may make this debate somewhat moot as it will tax sales where the goods/services are purchased rather than where the vendor is located. This type of harmonisation may cause tax rates to coalesce across the EU and make compliance easier and less costly to MNCs. In the meantime, the debate and politics will continue.

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