I'm a bit late in drawing attention to this - but holidays sometimes interrupt the best laid plans, and Sheila Killian's article in the July edition of The Village in Ireland is well worth reading. She addresses the problems Ireland has caused for itself by behaving like a developing nation using tax haven rules to attract transient investment to its shores and concludes:
We are now a wealthy country, with well-educated citizens. We shouldn't need to compete with poorer countries for American investment. We have grown up, in economic terms. It is time for us to develop our own innovation, foster our own indigenous base for employment and entrepreneurship, and reduce our reliance on tax competition. Such tax competition strategies worked brilliantly in the past, but are unsustainable in the future, for ourselves, and for the developing countries that more desperately need investment.
She's right.
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Why should it not continue to work for Ireland?
Surely it persuades companies to shift profits from other countries to Ireland? The rest of Europe loses tax revenues and the gain is split between Ireland and multinationals.
The tax shelter may now not attract more new manufacturers, for example. But, as you have written here before, it certainly does encourage American companies to set up structures that allow them to pay tax in Ireland rather than elsewhere.
To put it bluntly: how can Ireland lose by stealing our tax revenues?
Graeme
It won’t work because:
a) Ireland’s labour costs are now too high;
b) It’s infrastructure costs are too high
c) It has to shift the burden from labour tax to cortrect this
d) It needs revenue to correct this
e) It will ahve to broaden its CT tax base as a result
f) The EU is moving against it e.g. Cadbury Schweppes (which will stop chancers trying it) and the Halifax case on community abuse, which Irealnd offers. R & D and patent rulings ahve also gone against it
And that’s just for starters
Richard
I am more concerned about the sort of tactics you described in your “There is no Celtic Tiger” post.
The costs associated with transferring American patents and copyrights to Ireland are minimal (in context) so a) and b) are not significant.
f) is encouraging. I did not know about the Cadbury Scheppes and Halifax cases. However, as far as I know, massive avoidance continues and there is a long way to go. Is that correct?
Incidentally, you refer to low corporate taxes as a developing country tactic. I do not believe it is a good idea even in developing economies.