The suggestion that Ireland can benefit by abandoning the 12.5% headline rate so as to avoid being branded as a ‘pariah’ state or a ‘tax haven’, with little regard for the economic welfare of its trading partners would be an fallacious argument were it based just on a pragmatic economic calculus. It need not be even contemplated from a moral perspective.
It has been suggested by some Irish commentators that this may yet hold sway with the Government, whose current Tax Consultation has been portrayed as a cover for a climbdown. This has been proposed, despite even the risk of the reputational damage of it being seen as a betrayal of those who invested in Ireland, believing the IDA whose advertising has for long suggested a long term Irish commitment to a 12.5% headline rate (see cover image).
There are parallels with Afghanistan here. While Ireland abandoning its 12.5% commitment, to those who put their faith in Ireland by investing there (such as Apple) might not readily match the analogy of the Biden administration abandoning its Afghan employees to the depredations of the likes of ISIS-K, the principle holds: ‘my word is my bond’. ‘My word is my bond’ is also of course the firmest rock upon which financial services stands.
Ireland stood by its word during the financial crisis by honouring its decision to guarantee state issued bonds. Paschal Donohoe was one of those who stood by that guarantee. The service of Irish Army and Garda personnel in Afghanistan was also a commitment to that country by those who served, and the Irish state.
While there never was a promise to corporations to hold firm in the long term to 12.5% the effective message of a low headline corporation tax rate still does hold. Trust and promises do count. The West has spectacularly failed to keep its word with Afghan men, and, particularly, Afghan women. If economic calculus is to also come into it that abandonment has also been matched with the decision to abandon $billions worth of state-of-the art military equipment to the Taliban and other terrorists who see nothing wrong with killing innocent civilians in the street without warning. The first 170 victims of that were buried last week.
The Biden administration, whose envoy Janet Yellen engaged in a very focussed charm offensive on Ireland is hardly now in a strong position to ask Ireland to abandon its sincerely held international commitments in the fiscal sphere - based on that phrase - ‘playing fair and playing to win’, as the next round of OECD discussions take place.
Taxation is the shifting of money around by the state. An administration that abandoned billions worth of state-of-the art military equipment in Afghanistan is in a weakened position to ask for taxes to be hiked by its trade partners under the questionable machinations of the current BEPS proposals. Such moves certainly will not be welcomed by SMEs whose struggles to recover from Covid would not be helped by a rise in corporation tax rates.
Confidence is what the world economy needs most, post Covid. Taxes are the wrong lever to pull. Monetary policy, even Bernie Sanders’ beloved ‘modern monetary theory’ would be a more fruitful path than the BEPS tax-raising agenda, which in its present format poses serious potentially regressive threats to the world economy, world trade, and investment.