Wednesday, November 10, 2010

Are Ireland's low-tax days numbered?

Until its spectacular crash, Ireland's low-tax "Celtic Tiger" economy was praised around the world: many saw it as a good model to emulate. The headline 12.5% corporate tax rate was the crowd-puller, although as we have noted earlier, it was Ireland's (zero-tax) exemptions, rather than the headline rate, that were often the real selling points of Tax Haven Ireland.

Well, as we now know, Ireland is in an almighty mess. Despite one of the biggest austerity drives relative to GDP in world history, the country appears to be spiralling downwards. Take a look at the latest bond yields (pictured: click to enlarge, hat tip FT Alphaville) to see how bad things have got very recently.

In this context, then this, from Tax News, is interesting:

European Economic and Monetary Affairs Commissioner, Olli Rehn, arrived in Dublin for two-day talks with the Irish government and opposition on November 8, in an attempt to achieve multi-party consensus on Ireland's fiscal plan
. . .
The EU Commissioner's recommendations that Ireland should adopt "normal tax" policies is further evidence that as far as the EU is concerned, the days of low corporate tax in Ireland are numbered.

Previously, opinion was voiced in the European Parliament that should Ireland need a Greek-style bailout, the country should in return be forced to increase corporate tax. In a joint statement released in September, two MEPs, Markus Ferber, and Sven Giegold, argued that: “If Ireland needed the European Resolution fund, [Ireland’s] corporate tax rate has to be doubled. Moreover, Ireland has to give up its opposition to European cooperation in tax policy. [A situation cannot arise wherein] Ireland benefits from the common measures supporting the Euro but at the same time hampers other member states' collection of taxes.”

Interesting factoid: Giegold was, as it happens, a founder member of TJN, and a chair of TJN's global Board of Directors from 2003 to 2006, who then moved on to other things.

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