IFAC slams Budget

[C_Pike]

My criticism of IFAC is that their perspective is of "what if" those taxes were to disappear in the morning?
What if the Sun disappears in the morning?

I suppose at a fundamental level, the sun has been there for a long time and we understand why it rises, falls, and what is likely to happen in the future. To a more fiscally relevant comparison, we know we have x amount of workers we can tax, and even if unemployment spiked to the levels last seen in the great recession and emigration took off, a majority of them will still be here. We know how many houses there are and how much property tax we could levy at this level and that level.

We also know that if there was a recession tomorrow, once we came through the economic cycle things like employment - and associated taxes - are likely to bounce back. While if corporate tax receipts fell away due to changes in the tax environment, those revenues would not return.

The amount of corporate taxes coming to us is exceptional and not really grounded in anything in particular that is rooted here at home. The rules on IP placement could change tomorrow and we could keep the jobs but just see a smaller slice of the revenues.

There are a number of credible moves that could disrupt the current arrangement - the US regime, or a future one, EU or OECD level tax reforms - the fact we collect so much relative to our economy puts a target on our back that is quite logical from the point of view of our partners. The tax planning habits of a few corporations or, indeed, their own profit margins could all impact us.

These are decisions and things largely happening offshore, while we have baked the revenues into our day to day spending.

I don't necessarily disagree with that, I just disagree with the budgeting exercise of public finances without FDI tax receipts when the same exercise could be applied to Income Tax, VAT, etc.

I disagree for the reasons set out above. There is a certain predictability to the domestic economy. I think the way to look at these receipts would be to call out what should definitely not be set against day to day current spending, because of the risk. Alas, that opportunity is now in the rearview mirror.

Another way to think about it would be, if some sensible % of the CT receipts fell away, what % of current day to day spending now relies on them and would need to be either slashed in austerity or made up by hikes in income tax. Bearing in mind that CT receipts are now almost equal the entire income tax take. And is that a sensible risk to at least call out.

 

[Sister Sara]

Granted, The Sun comparison is pretty irrelevant.

The amount of corporate taxes coming to us is exceptional and not really grounded in anything in particular that is rooted here at home. The rules on IP placement could change tomorrow and we could keep the jobs but just see a smaller slice of the revenues.

Yes, the amount of corporate taxes coming to us is exceptional and I will accept it is understandable to question how secure, reliable, likely is this arrangement to continue? I'm of the impression that what is occurring is within the rules of international trade and taxes?
If its not, and whatever corrupt practices are occurring then if they get exposed then yes it could all stop quickly.

On the basis that all is above board and legal, then what rule changes are on the horizon that threaten current arrangements? This is the question I'm asking.
If all is within in the rules, then I don't accept that the rules on IP placement could changes to tomorrow. Who makes the rules? The Euro Parliament, Commission?

I would also query the sentiment of "not really grounded in anything in particular that is rooted here at home." Some of these companies have been rooted in Ireland for 30/40yrs now. There is generational investment here, trust, business understanding, political stability here. These companies have invested billions (?)....that's not something that disappears overnight.

On the contrary, a cursory check on these companies on what they are doing and what their CEO's are saying suggests to me that their intention is to deepen roots here and continue with current arrangements, including booking their corporate tax receipts in Ireland.

 

[skrooge]

I would also query the sentiment of "not really grounded in anything in particular that is rooted here at home." Some of these companies have been rooted in Ireland for 30/40yrs now. There is generational investment here, trust, business understanding, political stability here. These companies have invested billions (?)....that's not something that disappears overnight.

The point is the profits are disproportionate to the size of the firms active here. This suggests that while the firms are here aspects of those profits reflect other parts of the foreign MNE's operations.

While this is perfectly legal there's nothing to stop these firms recording this profit elsewhere. Perhaps another country might introduce better terms or perhaps these firms might buckle to pressure from a politician in there home country. None of these things are in our control

That's the first concern, the second is how concentrated the receipts are. 10 firms account for 60% of the total. It's estimated three firms account for half. Hardly the basis of a well diversified income source.

https://www.fiscalcouncil.ie/more-concentration-more-risk-three-firms-account-for-almost-half-of-irelands-corporation-tax-revenues/

 

[Sister Sara]

While this is perfectly legal there's nothing to stop these firms recording this profit elsewhere. Perhaps another country might introduce better terms or perhaps these firms might buckle to pressure from a politician in there home country.

True, but what I suppose I'm asking is , is there any substantive evidence or indicators of another country introducing better terms, or buckling to pressure from a politician in their home country that will divert these tax receipts?

I don't know if there is, but I'm suspecting that within the corridors of power of Government, within the HQ of IDA, within the Irish/US Chamber of Commerce, within the HQ's and AGMS of US corporations - that no significant headwinds are afoot that suggest that the current arrangements of booking these tax receipts in Ireland is in danger anytime soon. The amounts will vary of course due to trade, but the practice remains.

After rooting significant capital investment in Ireland over three, four, decades with a good return, after the Apple Tax, after double-Irish, after "leperachaun" economics - is it possible to imagine that US corporations in EU and hq'd in Ireland (often led by Irish CEO's) see no real attractive alternative to Ireland within the EU? Not without significant capital cost at least?

Is part of the quid pro quo of generational investment in Ireland, with political and trade stability, that Ireland has become the de-facto established prime location in the EU to book these tax receipts? And that it will take a lot more than an 'overnight' rule change to uproot current arrangements.

I don't know, but I think the evidence suggests that is closer to what is actually happening than the "what if" scenarios.

 

[skrooge]

After rooting significant capital investment in Ireland over three, four, decades ..... is it possible to imagine that US corporations in EU and hq'd in Ireland (often led by Irish CEO's) see no real attractive alternative to Ireland within the EU? Not without significant capital cost at least?

No one is suggesting they will withdraw capital and leave Ireland. Rather the profits that are booked here - and do not reflect the operations of the Irish part of the business - could, through a stroke of a pen, be booked elsewhere. The jobs would remain but the accounting exercise that is bank rolling our budget surplus would be gone and we'd be down billions of euro. It would have nothing to do with the IDA. The Irish government has no inside knowledge of other countries tax policies.

No self-respecting CEO will put the 'green jersey' ahead of shareholder interest. We are worth booking profit through until we're not. Sentiment won't cut it.