The EU has picked a strange time to pick on Ireland over corporate tax

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By Eamon Delaney

With all that is happening at the moment internationally, but especially in Europe, you really have to wonder : why would the EU pick now, of all times, to come after Ireland on corporate tax? At the World Economic Forum at Davos, but also in the European Parliament and elsewhere, Eurocrats and their economic cheerleaders lined up to have a go at the one thing that has transformed Ireland into an mini economic success.

Meanwhile, however, the EU faces huge issues elsewhere. Brexit continues to be a mess, with the UK cabinet still divided and both sides given a longer time to engage to prevent a calamitous hard exit.

Presumably inspired by Brexit, nationalist, seperatist sentiment (against the EU) is on the rise.

The Czechs have just voted in as President a xenophobic, anti muslim, far right pro Russian who is avowedly against EU values. In Hungary and Poland, the Governments of Fidesz and the Law and Justice party are the same and are openly defiant of Brussels and its directives. These are the recent post-Communist entrants to the EU and it is very ominous.

Meanwhile, in usually Europhile founder members like the Netherlands, Eurosceptic opinion is growing and in France, President Macron admitted (rather bizarrely) that France would have voted to leave the EU just like the UK did! Meanwhile, Merkel cannot even form a German Government

It’s a strange and reckless strategy by the EU that, when Eastern Europe is drifting towards xenophobic authoritarianism, and the UK is leaving – they pick this moment to come after Ireland on tax.

Okay, it’s not as if we are a big fish. We are a small country, and we can be bullied in the context of the EU which is, after all, a mismatch of big states and often very small. Just ask Greece.

However, surely at this very time of contagion and upheaval, the last thing Brussels wants is a disruptive angry member state that is not totally following the EU, or rather the centrist, integrationist French/German line.

After all, we are also the EU country most affected by Brexit, directly, with our island divided by an EU border.

This will greatly affect us, and there is ferment and disruption in the air. Yes, we are great Europeans, and continue to profess that we are, but things can change quickly. Remember, we are a country that has also rejected two European treaties.

 

The reality is that there is still much confusion about Brexit and we could yet lose the sticking plaster ‘deal’ that we so triumphantly seemed to have achieved in relation to the Border before Christmas. If this unravels, and if the Macron and Merkel continue to come after our independent and favourable tax rates, then we could be heading for an almighty row with the EU.

At Davos, Finance Minister Paschal Donohoe spoke of not wanting to use the veto within the EU to protect our economic model, but he did invoke the dreaded ‘veto’ word. And if it came to that, then a whole different atmosphere would arise, which would add to the disunity created in the East.

For many the suspicion has always been that the EU’s support for our Brexit position late last year was part of a softening up process on tax. A conspiracy theory perhaps, but Donald Tusk seemed just too buoyant about it, even tweeting in Irish !

The reality is however that if we don’t get a UK/EU concession on the border, then why would we even think about an Irish concession to the EU on tax. But even if we got the former, why should we kill our economic golden goose?

It’s quite likely that many Irish could live with the border truck delays and the watch towers in Newry if it meant we absolutely keep our 12.5 % corporate tax – and if this means telling the EU to piss off, then so be it.

Granted, there is legitimate international concern about major tax avoidance by global companies but this can be, and is being, addressed comprehensively via the OECD and the EU itself. This is quite different to a historically low tax rates which have been part of this country’s identity and success. Granted too, Ireland has become over-reliant on Foreign Direct Investment (FDI) and has neglected its bread and butter indigenous industry but that is another debate.

Incredibly, these internal EU tensions come at a time of a further threat to our tax from the US where President Trump has dramatically lowered rates but where he has also made specific and ominous warnings about a trade war with the EU itself.

Speaking to ITV, President Trump threatened to confront the EU over its “very unfair” trade policy toward the United States. “I’ve had a lot of problems with European Union, and it may morph into something very big from a trade standpoint,” he told his host Piers Morgan. “We cannot get our product in. It’s very, very tough. And yet they send their product to us — no taxes, very little taxes. It’s very unfair.”

This is very scary talk and in fairness the European Commission immediately said it was ready to retaliate against any trade crackdown by the US.

Ireland’s exports to the US (as % of GDP) are the biggest in the EU, and similar to Canada and Mexico, so we have a lot to lose if things deteriorate. So let’s hope the EU fights on our behalf, and not against us, on the tax and trade front.

Let’s face it. There was a clear reason why we brought Apple and others to Ireland and why we have a low corporate tax rate. It is the lifeblood of our economy, and in the past we even had a lower tax model, to bring jobs to our rain-washed shores.

A former Fine Gael Finance Minister Gerard Sweetman once proposed 0% tax – 0% !- for the Shannon Development zone to boost investment and job creation in the late 1950s and 1960s.

This is how we began our long-overdue industrialisation and economic regeneration. Without FDI, we are doomed, and if the EU stops us using tax breaks to bring in multinationals, we may as well follow the Brexit spirit and push away from the Brussels superstructure.

Nobody wants that to happen, and it is not likely to happen. But our Government needs to keep repeating the message that we are not for turning on the issue of corporate tax.

After all, if we were able to not surrender on it during our bailout negotiations, when Merkel and then French President Sarkozy tried to arm twist the Irish Government into changing our tax laws as a condition, then there is no reason why should be surrender now- even with Brexit.

Meanwhile, the EU, now led by Macron and Merkel (if she ever gets re-appointed) really need to address the bigger problems in the EU, not least the rising xenophobia in the East and the departure of a defiant UK in the West.

This article appeared in TheTimes.ie on 31 January 2018

 

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