Everyone is cautiously sneaking around the sensitive issue of corporate tax. Well, everyone except Leo Varadkar.
The Tánaiste has put forward a proposal that at first glance appears both impractical and unnecessary. Without, as it seems, having discussed in the cabinet, he raised the idea of a two-pronged regime in which almost all companies (everyone with a turnover of less than 750 million euros) stick to the 12.5 percent rate and all companies that above that, switch to a new one, higher rate – probably 15 percent.
Aside from the difficulty of obtaining an EU sanction for such a scheme and the risk of encouraging tax avoidance by those approaching the border, there does not seem to be any demand for it. The Irish economy has long since come to terms with the fact that corporate tax will rise as part of the OECD process.
But they have other worries. The reform of the EIIS system for initial investment in companies has been loudly called for, which is currently seen as too bureaucratic and stingy. And entrepreneurs have also been actively campaigning for a more generous capital gains tax regime for entrepreneurs who are selling their companies for a number of years.
Both are issues on which Varadkar has promised action. But with Covid debt likely to make tight household bills the norm in the next few years, it seems like it makes sense for the state to take the modest additional funds a higher corporate tax rate would bring in and then use them to run the business to improve elsewhere.
It is a sensitive issue for the republic. As the cornerstone of our hugely successful foreign direct investment offering, it is just another element to some outside observers of what they consider to be the tax haven structure.
Given the ongoing OECD discussions on corporate tax reform around the world, Ireland’s current reluctance is understandable. There is far too much at stake to sign a carelessly worded and incomplete document.
Compliance with the corporate tax rate of 12.5 percent in recent years was based on the need for security in dealing with foreign investors and our own domestic companies. For the past few weeks, however, it has looked more like it was clinging to a rock in a storm rather than using it to build a solid foundation.
In short, the interest rate has become more of a mantra than realistic reassurance for businesses.