I noted a fascinating blog on Irish corporation tax this week. Written by Michael Taft of Unite, Ireland, he said:
'Michael Noonan, finance minister, signalled in a statement last Thursday that his Department is preparing a report on the corporation tax rate that is expected to be ready by the end of March as part of a publicity offensive to counter claims that Ireland's effective rate (actual tax paid or provided for in an accounting period as a ratio of reported net income) is in low single digits.'
Apparently, the Government has ditched its previous claim that the effective corporate tax rate is 11.9 percent — when the study this was based on was shown by Dr. Jim Stewart to be defective as a comparator. Now it needs a new study to substantiate an old claim (it helps that the Government has already predetermined the conclusion, now they just have to fill in the numbers).
What Michael Taft then went on to do was suggest what that true rate of Irish corporation tax might be, saying:
This blog has always endeavoured to assist the Government. So I'd like to point the Government to some reasonably robust numbers. It can use either Eurostat or its own Central Statistics Office. Either way, they show Ireland has a low-low effective corporate tax rate.
One part of the equation — how much corporate tax rate is paid — is easy to determine. What is more difficult to estimate is the level of profits. Both Eurostat and the CSO use the category ‘entrepreneurial income'. Eurostat defines it this way:
‘. . . net entrepreneurial income . . . approximates the concept of pre-tax corporate profits in business accounting. ‘
The CSO defines entrepreneurial income as
‘ . . a more comprehensive measure of corporate profitability.'
So, armed with this ‘more comprehensive measure of corporate profitability', what are the effective corporate tax rates for EU-15 countries — combining both financial and non-financial companies?
Now what is staggering is how low those rates are, almost universally. But equally note that the three places in the EU most commonly considered to be tax havens are confirmed as such by this analysis, with staggeringly low rates of tax precisely because they use those ow rates to ensure profits are shifted into their jurisdictions form other places. As Michael notes, it's not chance that:
These happen to be the countries that the EU Commission is investigating for corporate tax practices.
As he also notes:
Back in 2000, the effective corporate tax rate in the Eurozone was 18.4 percent. By 2011, this had fallen to 12.5 percent. This may not seem like a lot but it is. This is equivalent to approximately €107 billion reduction in Eurozone corporate tax revenue. €107 billion.
Imagine if that revenue was available to the Eurozone: less tax on labour, more expenditure on public services and social protection, higher investment in telecommunications, renewable energy, and education (let's not forget that there are 76 million people in the Eurozone at risk of poverty and social exclusion). That €107 billion would mean a significant boost to domestic demand which would, in turn, mean more prosperous markets for exporting firms to operate in.
Instead, there's less of all that
Michael is right on all counts. The UK has heavily participated in this trend since 2010. We're all paying the price.
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I notice that for all the rhetoric about making our tax system ‘the most competitive in Europe’, our effective tax rate is above the EU average. Is this something Boy George will leap on to justify further tax cuts?
It would go a long way to help fill the deficit and would be spent back into the economy, rather than disappearing into tax havens.
Having sung “Cockles and Mussels” in Davy Byrne’s a long time ago I recall that Molly Malone died of a fever and no one could save her. If you see the present situation as a pandemic fever, large scale reductions in Corporation Taxes across Europe is a little like trying to cure a fever by swimming in the Liffey in January.
What a great pity so few of the ordinary citizens of the EU get to see the data in the graph cited here, Richard. I have little doubt that most people on personal tax rates of anything above 20% would be gobsmacked to learn that the average rate of corporation tax across these 15 leading EU countries is about half what they personally pay, and in three countries way lower.
One question. These figures are for 2011. Where do you think the UK is now given Osborne’s giveaways and gifts to his corporate masters? Somewhere around 11% I’m assuming.
Ivan
I am working on that data….
Richard
No doubt the subject of a forthcoming blog, then 🙂
In time….yes
And as if on cue:
http://www.testosteronepit.com/home/2014/2/27/us-corporate-income-tax-policy-in-one-dizzying-chart.html
Now, does the tax receipt chart look anything like the national debt chart, one going south the other north……
Thanks
May use that!
It’s interesting to note, don’t you think, that according to the World Bank ‘Ease of doing business’ table the UK has slid from an average position of 5th easiest to 10th since the since this government took office. This despite the fact that total corporate taxation level has fallen to 34% against an OECD average of 41.3%. This is below, for instance, Malaysia who (in the same period) have catapulted themselves from 23rd to 6th place despite overall taxation being 2% higher than our own. Proof, were proof needed, of the paucity of thinking that regards low taxation as the only blunt instrument for attracting inwards-investment.
The figures also provide an interesting take on the effect of free-market thinking on ‘ease of doing business’. One of the UK’s worst areas of performance is in the supply (and supply cost) of electricity, with average connection times standing at 126 days (OECD average 89 days), and cost 91.9% (% of income per capita) against the OECD average of 79.1%. These figures have shown a 2.83% worsening in just 12 months and it is difficult to see how, without direct government intervention, the antithesis of free market thinking, they could be improved.
The ‘Ease of doing business’ index is, of course a very mechanical tool and does not take account of other more common effectors such as the cost to business of the inevitable result of low taxation on mundane infrastructure (which can be as simple as the cost to commercial vehicle fleets of repairs as the result of poorly maintained roads).
Nor does it factor in increased waiting times for medical treatment and the effect that has on working days lost through illness.
Taken together these aspects highlight the intellectual cult-de-sac of ‘Osbornomics’.
The paradox is this; ceding control over something as fundamental as energy supply to the marketplace requires that savings for businesses need to be found elsewhere, in order to make the Country an attractive place to do business. If those savings are only available through tax cuts, crucial infrastructure suffers as a result, thus making Britain a more difficult place to do business.
Morally bereft, intellectually bankrupt, economically illiterate.
Interesting points