Corporate Tax Saga, May 11 Edition

The saga over Ireland’s request for a reduction in the interest rate on its EU loans continues, with the French continuing to link this issue with Ireland’s corporate tax, a role they swap every so often with the Germans (media stories from today here and here). As Christine Lagarde’s recent comments show, having made such a big deal of the issue, the French are now motivated to achieve the crucial goal that “Everybody will have to save face.”

It is worth noting, however, that the French signed this document “Conclusions of the Heads of State of Government in the Euro Area” on March 11. It stated:

Pricing of the EFSF should be lowered to better take into account debt sustainability of the recipient countries, while remaining above the funding costs of the facility, with an adequate mark up for risk, and in line with the IMF pricing principles.

Note the absence of any mention of corporation tax or renegotiation of deals.

Despite the constant repetition of the line that Ireland is somehow looking to change the status quo, it seems to me that there is a strong case for the opposite position. Having agreed to change the pricing of EFSF loans on March 11, the EU’s principle political leaders have reneged on this agreement for the moment, most likely because the political kudos that come with appearing tough on Ireland outweigh those associated with honouring agreements made at Heads of State level.

Those who believe that Ireland’s situation will end well because European institutions have our best interests at heart may wish to consider how things have played out over the past few weeks.

40 thoughts on “Corporate Tax Saga, May 11 Edition”

  1. I’m not sure who you mean, but I doubt you will find many here who believe that the EU’s institutions ‘have our best interests at heart’. I am, however, aware of quite a few (among whom I would be happy to be associated) who believe that the institutional and political EU will put its own interests first, but that the government should strain every sinew to convince them that it is also in their interests to cut the smaller peripherals some slack.

    And I think many of us are aware that a politically dead President walking in France (soon to be accompanied possibly by a politically dead Chancellor walking in Germany) has to do a bit of ‘grandstanding’ in the face of the surge in support for populist, nationalistic, xenophobic rhetoric.

  2. Paul hunt is right. While the peripherals continue to fit the caricatures drawn of them, they will have to keep getting a good political kicking (not entirely undeserved in some respects).

  3. “Those who believe that Ireland’s situation will end well because European institutions have our best interests at heart may wish to consider how things have played out over the past few weeks.”
    I used to… but not for a while.

    Why was it again we couldn’t just have the IMF?

  4. Politicians everywhere try to have some way of appearing to follow their principles while still being pragmatic. This agreement/statement is suitably vague to be found pleasing for experienced politicians.

    Would increasing the CT reduce, increase or not impact the short term risk?

    What is the ‘adequate mark up for risk’?

  5. I believe that Ireland’s situation will finish way clear of the apocalypse, so popular, even craved for, in these parts, because European institutions have THEIR best interests at heart.

  6. I have noticed that Minister Noonan and the Taoiseach in recent days have been unequivocal that our 12.5% corporation tax rate will remain unchanged. It is a little worrying, particularly in Minister Noonan’s case (he being one of the most articulate and carefully worded politicians you will find anywhere) that the base has not been mentioned.

    Currently we get about €3.9bn in corporation tax which would roughly equate to 12.5% of €32bn of taxable corporation tax income.

    What is the point of keeping the 12.5% rate if the base is changed so that the taxable income falls to €16bn, I don’t know if anyone has done the analysis but if Google’s income were to be taxed where its GoogleAds feature is purchased, we could probably wave goodbye to 90% of the taxable income current subject to Irish corporation tax.

    So it is worrying when politicians defend the rate and remain silent on the base, and in recent days they have been silent on the base.

  7. Mote, beam.

    The French know all about tax incentives for companies. This from their Invest in France site:

    “Setting Up in France
    Modified Tax System

    For the past five years, France has been pursuing an ambitious policy to reduce corporate tax. Although the nominal rate of corporate tax (33.33%) is higher than the European average, the corporate tax system has become just as competitive as in other European countries. Recent international comparative studies have confirmed this, with France now ranked as the second most investor-friendly country in Europe, after Ireland and ahead of the United Kingdom and Germany (KPMG/EVCA research).

    France is a real tax haven for research and innovation
    France has had the best research tax credit in Europe since reforms were passed in 2008.
    Reduced corporate tax rate of 15% (instead of 33.33%) for income from intangible property.
    Creation of the innovative new company (jeune entreprise innovante – JEI) status in 2004, allowing such companies to benefit from tax and social security exemptions as well as the research tax credit in their first year of existence.
    In light of these various measures, the KPMG “Competitive Alternatives” study, which examines different start-up costs in 10 countries, has ranked France second for tax competitiveness when it comes to setting up R&D activities.”

    http://www.invest-in-france.org/us/business-environment/modified-tax-system.html

  8. “What is the point of keeping the 12.5% rate if the base is changed so that the taxable income falls to €16bn, I don’t know if anyone has done the analysis but if Google’s income were to be taxed where its GoogleAds feature is purchased, we could probably wave goodbye to 90% of the taxable income current subject to Irish corporation tax.”

    Precisely,that is why the rest of Europe will not and should not let go.

  9. It is most likely that all these statements are mere political grandstanding and that an agreement will be reached sooner or later. It all reminds me of the negotiations leading up to the Good Friday Agreement. When addressing the media, each side makes hardline statements that are primarily designed to pacify their own voters, but a fudge nearly always emeges from the negotiations. The one certainty is that Ireland’s CT rate will NOT be increased. Period. Full stop. If the French want some meaningless fudge to save face, so be it. If it means no interest cut, so be it. It is hardly the end of the world. However, a far better route to achieving an interest rate cut would be to introduce an immediate further cut in public expenditure, say equivalent to 1 per cent of GDP. From the IT article that Professor Karl Whelan linked to:

    “Euro zone sources have suggested that Dublin could secure a cut in the cost of its EU bailout loans by accelerating budget austerity instead of raising its business tax rate.”

    This avenue should be pursued. Pursuing it would result in double savings: the savings from the cuts and the savings on the interest rate. It is also what ESRI suggest in their Quarterly Economic Commentary out today (link below):

    http://www.rte.ie/news/2011/0510/esri_economy.html

    It is increasingly clear that those who predicted at the the time of the December 2010 budget that the cuts introduced then would destroy the economy have been proved wrong. Since Brian Lenihan’s last budget, which many here predicted would kill the economy, the live register has fallen virtually every month, monthly job redundancies have fallen every month, monthly job vacancies have risen every month, and, most important of all, tax revenues in the first four months of 2011 are running 1% ahead of what was forecast in that budget, while spending is running 2% below what was forecast in that budget. Hands up all those who posted here back in December, or on their blog/twitter sites, that Brian Lenihan’s fiscal targets were unachievable because the cuts he was introducing would kill off economic growth. How do you explain away the fact that, so far in 2011, they are being more than achieved?

    Now today, in that same QEC, ESRI have revised UP their forecasts for GDP growth to 2% in 2011 and 3% in 2012. This is hardly the economic ruin that Morgan Kelly claims is imminent. Naturally, this news has received little publicity, indeed negligible publicity in comparison to Morgan Kelly’s mad rant in the Irish Times last weekend (I’m sure that this post will be the first time that many readers will have become aware of it).

    http://www.esri.ie/UserFiles/publications/QEC2011Spr_ES.pdf

    We should take advanatge of the fact that Ireland is politically and socially stable, on a scale that few other countries in the EU can match. Greece was on general strike today. Ireland wasn’t. Other countries, not just the PIIGS, but France and the UK have had general strikes and/or riots in protest at public expenditure cuts in recent months. Ireland hasn’t. If modest further cuts are introduced, commentators like Browne and O’Toole, and nutters on sites like this, will be saying ‘this is the last straw’, ‘the people can take no more’, ‘march on the Dail’, ‘general strike’, blah, blah, blah, but everyone knows that it won’t happen. A combination of public acceptance, without protest or industrial action, of public expenditure cuts and public support for keeping business taxes low will look extremely impressive to those who make FDI decisions. In most EU countries, the oposite would be occurring.

  10. @JohnTheOptimist

    You are whistling in the dark.
    The tax rate will probably stay ,but the tax base is a goner.
    The tax rate will go in the years to come,at the next round of negociation ,which will arrive soon enough.
    The idea that a socalist party in Germany or in France will be more sympathetc to the Irish position than the conservative parties is bizarre in the extreme.

  11. @ Overseas guy

    “Precisely,that is why the rest of Europe will not and should not let go.”

    To be honest, the more I’ve looked at the consolidated tax base thing, the less it makes sense.

    I’ve no problem at all with the idea of harmonising on what can and cannot be deducted from the definition of income. But the idea of a corporate income tax that hands over its revenues to places outside where the income is declared on the basis of where the stuff was sold, strikes me as odd. Direct taxation is supposed to be a national prerogative within the EU and this idea that you have to fork over corporate tax income to other countries seems, to me at least, to be inconsistent with that.

    And why does it have to stop at corporate income tax. Why not have Ireland hand over part of the personal income tax that Google’s employees make to other countries rationing it according to Google’s sales? The principle would seem to be the same.

  12. @Karl Whelan

    I would have thought advertising sales were VAT-rated, which just reinforces your point.

  13. @Karl Whelan
    Google is a very good example. The search engine is being developed in California. Most of the servers are in the US. The sales activities are located in the respective countries. There is practically no value added in Ireland .I suspect that the computer which is in charge of the billing is also based in the US even though the invoices I receive by mail have an address in Dublin. The only reason that Google has a legal entity in Ireland is to avoid paying taxes in the US or in the countries where the service is sold.
    Granted, Jersey, the Isle of Man, the Caiman Island etc, are doing the same or worse, I doubt very much that they will ask for a guarantee for their borrowing to the AAA countries of Europe.
    Irish attitude toward that problem is the same that I meet when discussing numbered accounts with a Swiss .Somehow, straight Calvinists from Geneva cannot find anything wrong with tax cheating.
    Nobody expects to change your mind or the mind of any Irish on the subject, but I hope that your partners in Europe will use any leverage they can get to change the status quo.

  14. The CCCTB has been rejected by the Swedish parliament today. The parliamentary committee found that it was not in line with direct taxation being decided on a national level.

    & the distribution formula was not found pleasing either…

    With the CCCTB the EU decides where the CT is to be applied, without the CCCTB the corporations decide where the CT is to be applied. Which is better?

    If the CCCTB does not come to pass, then the countries that believe themselves to be benefiting from the current system might have to hope for that no other country in the EU will offer better CT-deals to lure ‘their’ CT away.

  15. re “consolidated tax base thing” bureaucratic, expensive nightmare, designed to keep lawyers in business for eternity, divide and hide, to make transfer pricing aka Overseas Dutch Sandwich, Double Irish, legal, complex, unwieldy, unnecessarily complicated and a scam:)

  16. Actually if Greece defaults and attention switches to Spain and Italy anything we offer will “save face”.

    We want burden sharing : we offer possibility to prevent a “debt Tsunami”

    We want 12.5% CT:we offer EZ one example of post”bailout”success

    EZ wants Euro to survive: We offer not to “jump ship” too soon

    EZ/EU gives us 3.75% interest rate: We offer balanced budget by 2015

    If we make them look like major concessions a lot of “face” will be saved!

    IMHO a lot of European technocrats and politicians are discovering that even though Ireland is a small country we are actually pretty hard to “kick around” now that we have closed down our tent, become less concerned about huge soccer stadiums and cured our “congestion”.

    It would not surprise me if many of our “partners” secretly believe that it would be more sensible to let us get on with managing our own way to recovery, (rather than squabbling with us) which is actually no different than what the Swedes and Danes have been doing for years.

  17. This comment is relevant here and the link in the subsequent comment. There won’t be an interest rate cut next week according to Lucinda Creighton. The difference between the EFSM and EFSM in terms of conditionality is huge. Since all decisions relating to Portugal are now by QMV, the Irish government should strongly point out the difference in treatment between Ireland and Portugal. Rehn has stated previously that under QMV there would be an immediate interest rate cut.

  18. @Jagdip Singh
    “What is the point of keeping the 12.5% rate if the base is changed so that the taxable income falls to €16bn, I don’t know if anyone has done the analysis but if Google’s income were to be taxed where its GoogleAds feature is purchased, we could probably wave goodbye to 90% of the taxable income current subject to Irish corporation tax.”
    Well, Google’s corporate taxes are not taxed in Ireland. IIRC they made 46 million euro profit on their Irish operations last year. The other profits they make are not taxed anywhere – they pass through Ireland untouched. Likewise, I believe, Microsoft.

    The GNP-GDP gap is the pass-through income….

    @Karl Whelan
    “To be honest, the more I’ve looked at the consolidated tax base thing, the less it makes sense. ”
    Actually, it makes more sense for Ireland and little sense for the eurozone exporting countries. Imagine if we could tax Tesco’s profits here? Or VWs? Or anyone else who sells stuff into Ireland? Imagine if all the profit on the bling and tat sold here was taxable.

    If that was the case, fiscal stimulus might work a little better…

  19. The CCCTB is essentially unworkable as politically impossible to achieve consensus on the particulars amongst 27 national interests. I have no problems with agreeing to discuss it, but I wouldn’t be placing all me negotiators on that unworkable table. Discourse on the distinction between the standard and the effective could drag on for twenty years, but it will be put quitely to bed well before that, hopefully. The twelve point five percent isn’t cast in granite, and if further EU integration (unlikely as it seems at the mo) ensues then some movement towards an effective EU mean is likely, but that time is certainly not now.

    Whether the present French Admin saves face or not is entirely irrelevant.

  20. @Jesper

    That is good news for Ireland, but what is really needed is another EZ country willing to use its veto to prevent an “EZ CCCTB”, and to take some pressure off Ireland being a holdout. The chances of an EU27-wide CCCTB are zero anyway since the UK will veto it.

  21. I don’t even know why the French want it.

    Our Corporation tax revenues of 4bn a year?

    How do they compare to the average Euro take?

    Some studies in the media recently enough (the source of which I can’t quite recall atm) said that the main beneficiaries of the CCCTB would be Spaina and some other non-french/german countires.

    Whats actually in it for the French and Germans? Our MNC jobs? The FDI? The tax take? Or do they want such benefits transferred to somewhere like Spain for unemployment, euro stability reasons?

    I don’t know.

  22. Placing this levy on private pension funds may be unfair, but placing it on public sector pensions would be mainly a symbolic gesture.

    Each time it is applied, the levy generates a lump sum equal to 0.6% of all the assets of private sector pension schemes. These assets there to back the pension entitlements of people at all ages of the workforce, plus current pensioners. The government takes a cash lump sum, the pensioner takes a reduction in his annual income, and the worker takes a reduction in his future entitlement. If the same thing was applied to the public sector, then the immediate cash generated would be 0.6% of current pension payroll (the annual payment, not the value of pension) and that’s it. The rest of the saving would emerge over the next six decades or so. Probably not a useful timescale for a jobs initiative.

    Applying this levy to public sector pensions would be mainly a symbolic gesture. The effect on the private sector will be to reduce current private sector pensioners’ income by 0.6% and reduce the pension funds for private sector workers by 0.6%. This generates actual cash. For public sector workers, there is no immediate cash saving and it would take many decades for the full 0.6% saving to emerge.

  23. Re. Ireland’s corporate tax rate as a price for reduced interest rate on EFSM loans – the debate is hot air and political posturing, because:

    The interest rate on Portugal’s EFSM loan will be set at a less punitive rate than Ireland’s.

    Portugal’s bail-out/ EFSM loan cannot go ahead without Michael Noonan’s signature.

    Noonan cannot sign off on a lower interest rate for Portugal than Ireland is paying.
    Noonan tells Sarkozy et. al. “Forget about corporation tax: no interest rate cut for Ireland = no Portuguese bailout”

  24. I don’t understand why our politicians had to start mouthing off about the interest rate reduction before it happened. The Commission proposed it. All we had to do was keep our mouths shut. Instead we start making pronouncements and alerting the French media to it. Is being able to take credit for this more important to Enda Kenny and Lucinda Creighton than actually getting the reduction??

  25. @overseas commentator

    “Irish attitude toward that problem is the same that I meet when discussing numbered accounts with a Swiss .Somehow, straight Calvinists from Geneva cannot find anything wrong with tax cheating.
    Nobody expects to change your mind or the mind of any Irish on the subject, but I hope that your partners in Europe will use any leverage they can get to change the status quo.”

    Do you think an increase in our corporation tax rate will improve or decrease our chances of avoiding default?

    If the answer to that is it will decrease our chances then it is preposterous for EC governments to pursue it – an Irish default is far more detrimental to EC interests than a marginal or even a meaningful change in the rate.

    While I agree that the corpo rate is a bit a free rider issue – it is the worst possible time for us to change the rate – and, moreover, we are never going to meaningfully change the rate – so making it an issue is simply bad politics – its making an issue where there can be no solution

  26. @ Overseas commentator

    The fault in your logic is the fact that direct taxation remains a national prerogative. Ireland is not required to change its tax laws or rates because no other country of the EU can be required to do so. The countries of the EU have not agreed by treaty to do anything else.

    The French position is outrageous (the Germans are just along for the ride)because it links unrelated issues in order to blackmail a smaller state to make concessions in another area where the member states HAVE agreed to act together – to the extent of sharing a single currency – and the problems associated with which require action by all the countries involved and not solely Ireland.

    This is not the behaviour of a country that understands what the EU is all about. I fear that, under Sarkozy, it has forgotten the vital principle that the Union is based on solidarity not inter-state displays of political power. We all know that France is a big country. It does not have to throw its weight around in this manner to prove the point. Unfortunately, the people who surround Sarkozy seem to either share this view or are unable or unwilling to persuade him otherwise.

    The stalemate is now a purely political one.

    On the CCCTB, the proposal is based on an article (Article 115 TFEU) dealing with the approximation of laws under which the Commission may make proposals and which Member States are obliged to consider under the principle of loyal cooperation enshrined in the treaties (Article 4.3 TEU). The final decision is based on unanimity which will not be forthcoming. What the French may be seeking is some form of common understanding among the member countries of the euro area that they will proceed by way of an enhanced cooperation (a minimum of nine countries under Article 20 TEU) when the CCCTB proposal is shot down (a foreseeable event but quite some time away).

    The row with Ireland is a useful preliminary skirmish which they cannot lose. The Commission and other Member States are perfectly aware of this. But Berlin will not move until Paris does. That is politics but not as it is normally understood in an EU context.

  27. A couple of simple questions for those with der knowledge of CCCBT:

    1. Would this apply to imports from outside the EU? For example, would it be applied to imports from China?

    2. Does this jar with world trade agreements? A little tongue in cheek, but would the the EU suck the profits from FairTrade Co-ops in developing countries?

    3. If it doesn’t apply to countries exporting to the EU, does this not put all EU countries at a disadvantage?

  28. @DOCM
    “The fault in your logic is the fact that direct taxation remains a national prerogative. Ireland is not required to change its tax laws or rates because no other country of the EU can be required to do so. The countries of the EU have not agreed by treaty to do anything else.”
    You are perfectly right ,under the present treaties there is no way that France or Germany can force Ireland to change its corporate tax rate. There was no obligation either for the French or the German government to finance the Greek, Irish and tomorrow Portuguese bail-out .The treaty instituting the Euro expressly forbids any type of bail-out! Mrs. Merkel is paying a heavy political price for not having respected the treaty and there are several challenges in the German judicial system against her .There is no way that anybody can oblige the French or the German to agree to a rate reduction ,therefore they can ask anything that they please in return ,the Irish government is perfectly free to accept or refuse such a trade-off .If you agree with me that it is likely that Ireland( and Greece) will not be able to finance its debts on the market for years to come ,there will be new confrontations on the same subject in a near future.
    @ Christy
    “If the answer to that is it will decrease our chances then it is preposterous for EC governments to pursue it – an Irish default is far more detrimental to EC interests than a marginal or even a meaningful change in the rate.”
    I think that you have a strong argument there, but try to put yourself in your partner’s shoes, if they wait until Ireland economy gets better to press the issue, what is their chance of success?
    I think there is a way out of this dilemma: Ireland can propose to change its taxation in the future, as soon as a certain target is reached (for example until the moment where the budget reaches a primary balance surplus).
    @Rob S
    Why do the French (or the German) want the Irish to change their taxation rate?
    The present crisis has shown that the EZ ,as it was initially designed does not work .Financial regulation must be tighter, budgetary rules must be enforced, national accounts must be audited etc.
    If we want to share a currency, we must agree on a common set of rules. One of them is a minimum taxation of businesses (there is presently a precise set of rules for the VAT concerning the consumer taxation) .A very low rate of taxation in one country forces the others to reduce their own taxation or risk losing its tax base. Some of the biggest German and French firms are incorporated in the Netherlands to lower their taxation, for example .
    When one reads this blog ,it is very clear that many Irishmen have given up on the idea that Ireland will ever have its own indigenous manufacturing industry and that Ireland will always be dependent on an economic model where the attractiveness of Ireland can only be dependent on cute tricks to entice US firms to incorporate in an Irish tax heaven .I do not believe this is true .The “Celtic Tigers years” were based on a fraud and, long term were years wasted. There is absolutely no reasons Ireland cannot develop its own successful indigenous economy.

  29. @ Overseas commentator

    Unfortunately, you do not answer the points that I make. Your assumption that the creditor countries – notably Germany and France – were doing Ireland a favour in agreeing a “bail-out” package and deserve a favour in return does not stand up to serious examination, neither from the point of view of motivation nor reality. The loans – and that is what they are – were offered (i) to protect the health of the domestic banks of the countries in question which had indulged in a wild spree of injudicious lending across Europe and (ii) carry an exorbitant interest rate to guard against an inexistent threat of moral hazard.

    Your VAT example is particularly badly chosen. The Commission has been trying for half a century to harmonise and introduce an origin based system for VAT with the proceeds shared between the Member States in accordance with an agreed formula. It has not succeeded. While a private individual can buy goods anywhere in the EU, pay VAT, and bring them to any other country (there are some exceptions), businesses cannot. Commercial exports are still zero-rated in the EU and businesses must be registered for VAT with their local tax authorities in order to conduct trade. This fragmentation has given rise to many abuses, notably the notorious “carousel trade” where tax is deducted on the same goods but never actually paid to the authorities.

    So, France and Germany want to introduce a system allocating direct tax revenues on the basis of sales, and share out the proceeds, but are not willing to do so with regard to VAT, which is an indirect tax and the subject of treaty obligations, unlike direct taxes! Do they take others for complete idiots?

    This is about competition for foreign direct investment and nothing else. The French have skewed their system to be one of, if not the, most attractive locations in Europe for FDI and they choose to twist the arms of the Irish who operate a system which is uniform across all industry sectors, totally transparent and in compliance with all the general principles of EU law such as non-discrimination!

    The behaviour of the French is outrageous and Germany – which has a high nominal and effective rate of corporation tax and would like other countries to have the same – is just free-riding.

    On your general point with regard to the over dependence of Ireland on FDI, I agree.

  30. @DOCM

    I do not think that you answer my answer. In your first sentence you frame the debate in a legal framework: under present treaties Ireland is free to set its corporate taxation level. Under present treaties the other countries are free to lower ,or not, the interest rate applied to the bail-out .
    To counter this argument you answer that the creditor countries are under a moral obligation to lower the interest rate because the bail-out terms were inequitable .This is a moral position not a legal one .As far as I know a legitimate Irish government signed the bail-out papers .As to the responsibilities of the present situation few people outside of Ireland accept the view that the ECB and the bond-holders are responsible for the housing bubble, the guarantee to the banks etc.
    I happen to agree completely to your critic of the VAT system. What I was pointing out is the fact that the states must obtain the approval of their partners before any change to the rates of TVA applied to any category of goods or services. It took years for the French to apply a reduce rate to the restaurants, because the Germans where against it (I wish the Germans had not capitulated ,it was one of the most stupid ideas of Sarkozy).
    As to your critic of the French Corporate tax system ,it is a very good argument in favor of a common tax base. By the way ,you should read the French budget, the revenue forecast are audited by the “Cour des comptes” which is very critical of the government. You will see that the effective tax rate is nowhere near the numbers that are floated in the op-ed Irish or British papers.

  31. @ Overseas commentator

    You must read what I write more carefully. I never said that people outside Ireland were responsible for the bubble and I also never said that there was any obligation, moral or otherwise, on the countries contributing to the “bailout” to raise or lower the rate, still less am I arguing that Ireland is not bound by its terms. I was simply making the point that the countries concerned did not act out of altruism and, by general consensus, including the view taken by the Commission, the rate is too high and, for that reason, counter-productive.

    My general point is that there is no legitimate basis for linking the issue of the level of corporation tax in Ireland with the decision to grant a bailout, nor a change in the rate, nor any basis for a quid pro quo. What is at issue is an attempted crude inter-state exercise of power which is foreign to the very idea of the European Union. It will fail for that very reason as other countries will be asking: who is next?

    As to the CCCTB, by all means, let there be a negotiation on the Commission proposal and let us see what the outcome will be. But it is not acceptable for any country to try and decide that outcome before those negotiations have even begun, not to mind been completed.

    I need hardly add that I consider both Sarkozy and Merkel to be a menace to very future of the European Union as both exercise too great a power in their respective countries and neither is up to the demands of the job. If they were, they would not have sown such confusion and division across Europe, their antics in respect of the Irish tax corporation tax rate being but a minor example.

  32. @overseas commentator

    If we want to share a currency, we must agree on a common set of rules. One of them is a minimum taxation of businesses (there is presently a precise set of rules for the VAT concerning the consumer taxation) .A very low rate of taxation in one country forces the others to reduce their own taxation or risk losing its tax base.

    The logic here is flawed. There is no need for tax harmonization in order for a common currency to work. The USA is an existence proof of this. States compete with each other by offering tax and other incentives to lure foreign investment (e.g. BMW car plants) – the dollar seems to survive just fine. You should not are make the false argument that the tax rate issue is linked to or necessary because of sharing a currency.

  33. @Bryan G

    “There is no need for tax harmonization in order for a common currency to work.”

    There is a difference between healthy tax competition, where countries with lower public expenses can set lower tax rates, and tax parasitism, where a bankrupt country is keeping tax rates lower than every single other EU country thanks to bailout money.

    Outside of Ireland, the bailout is increasingly looked at as a subsidy for its low corporate tax rates. I hope the French will keep their stance.

  34. “What is at issue is an attempted crude inter-state exercise of power which is foreign to the very idea of the European Union. ”

    I’m not sure where you have been all these years; it’s more like such horsetrading has been and still is at the very heart of the European Union. E.g. the famous case in 2002, when Germany supported the French on EU agricultural subsidies in return for French support vs Bush on the Iraq war issue.

    But the issue of interest rate paid by Ireland and corporate tax rate *is* linked and it does make sense to link it. As someone asked, “Do you think an increase in our corporation tax rate will improve or decrease our chances of avoiding default?” Since an increase in the Irish corporation tax rate, matched by an appropriately calculated decrease in interest rate, would lead to a neutral impact on the Irish government treasury (less money in from the tax rate, less money out from the cut in interest rate), it is clear that by linking the two one can increase the Irish corporate tax rate and not change the Irish chance of defaulting.

  35. “What is at issue is an attempted crude inter-state exercise of power which is foreign to the very idea of the European Union. ”

    I’m not sure where you have been all these years; it’s more like such horsetrading has been and still is at the very heart of the European Union. E.g. the famous case in 2002, when Germany supported the French on EU agricultural subsidies in return for French support vs Bush on the Iraq war issue.

    But the issue of interest rate paid by Ireland and corporate tax rate *is* linked and it does make sense to link it. As someone asked, “Do you think an increase in our corporation tax rate will improve or decrease our chances of avoiding default?” Since an increase in the Irish corporation tax rate, matched by an appropriately calculated decrease in interest rate, would lead to a neutral impact on the Irish government treasury (less money in from the tax rate, less money out from the cut in interest rate), it is clear that by linking the two one can increase the Irish corporate tax rate and not change the Irish chance of defaulting.

  36. A man becomes gravely ill and is taken to hospital. After intensive treatment, he awakes: his fever has gone but he is still very weak. Around his bed are ranged doctors in their white coats. One steps forward and smiles: “On behalf of the medical team, can I say how glad we are that our treatment has been successful. We hope to see you back on your feet soon. However, it has been suggested that you should give us a little something in return” (one of the others hands him a scalpel) “and we believe that a leg would be an appropriate gesture. Ready?”

    In composing this little drôlerie, I had considered giving the lead doctor a name–Nicolas Sarkozy was the one that came to mind, for some reason. But that might have been too far-fetched.

  37. “Since an increase in the Irish corporation tax rate, matched by an appropriately calculated decrease in interest rate, would lead to a neutral impact on the Irish government treasury (less money in from the tax rate, less money out from the cut in interest rate), it is clear that by linking the two one can increase the Irish corporate tax rate and not change the Irish chance of defaulting.”

    Wahahahahahaha! Always this bollock argument that increasing the corporate taxe rate will reduce corporate tax receipts in the short term. Do you really believe anyone is buying this argument outside of Ireland?

    To the extent that the higher corporate tax rate is used to reduce the deficit, the default probability would be clearly reduced, even without a decrease of the interest rate.

    I sometimes really wonder whether the Irish realize how high their deficit is. Still more than 10% expected in 2011!!!

  38. @incognito

    There is a difference between healthy tax competition, where countries with lower public expenses can set lower tax rates, and tax parasitism, where a bankrupt country is keeping tax rates lower than every single other EU country thanks to bailout money.

    So you agree the issue has nothing to do with being part of a currency union?

    You can make the argument that tax competition should be abolished, and use perjorative language to do so if you want, however this argument must begin with the argument for a Treaty change where national governments agree to pool sovereignty in matters of direct taxation. After this has occurred then the issue of tax competition is “in play”, before this has occurred it is not. It really is as simple as that.

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