Ronan Lyons | Personal Website
Ronan Lyons | Personal Website

Are you right there, Michael? Knowing when no deal is better than a bad deal

  • Stephen Hamilton ,

    Well said Ronan. Our so called European partners really need to fess up and explain the situation properly to their citizens. Far too much politics at play in France and Germany.

    Have the IMF considered lowering the rate on their part of the loan? Perhaps it would be a better tactic to get their rate down first and then hopefully France and Germany will be so ashamed of themselves that they will follow suit.

    • Fergus O'Rourke ,

      Yes, but …

      My sense is that the dissatisfaction with our tax arrangements really stems from the “second-order” stuff of which transfer-pricing is only the most obvious (and easiest to explain).

      And my (hopeful) guess is that the Government is thinking of that area of possible gesture, rather than the rate.

      • Ronan Lyons ,

        Countries have been looking for ways to stop transfer pricing for decades, to the best of my knowledge. If the Irish government was able to come up with something on that, I think there’d be a lot of interest internationally. Perhaps, though, the Irish government just needs to convince the Dutch to close off the”Dutch Sandwich”, thereby keeping a lot more profit in the EU. (Ireland could easily, however, be one of the largest beneficiaries of such a move, much to the annoyance of France and Germany!) The Germans would probably be happy if they got a concession on royalties on financial products – I believe Ireland has none.

        • Eamonn Moran ,

          Hi Ronan. I think you have left a rather important line from your graph. Gains from increasing the corporate tax rate. If corporate tax rate goes from 12.5% too 17.5% then one presumes the exchequer will gain more income. Last years corporate tax was 4 Billion. Using the same source as you did for showing Frances effective rate at 8% Irelands effective rate was 11% we took in 4 Billion in corporate tax at that rate. If we assume an effective rate of 16% when it is 17.5% that would lead to an increase in corporate tax by well over 1.5 billion in year one. Even if that started coming down over time it is still way too big of a number to just omit. Or as is very possible have I missed something?

          • Ronan Lyons ,

            Thanks for the comment. This is the great unknown about this exercise. As I wrote above, I am assuming that there is no net effect on corporate tax income. In other words, the corporate tax foregone by greater outflow and smaller inflow of FDI is offset by more tax paid by those who stay/survive in Ireland.

            I think it’s important to remember that domestic corporate tax is not free money, it is money taken at the expense of income to workers, shareholders and consumers. So even if the FDI issue did net off, we would face higher prices, lower wages and smaller dividends domestically which would of course have an impact on employment and government receipts from the domestic economy. None of that is factored in above – as I said, I thought I would be generous to the counter-argument and say that this didn’t happen.

            What you are arguing is that these effects would be smaller than the effect of increased tax take from FDI companies who remain and from Irish companies who survive and thus that I am being generous to my own argument! Given that we talking about possibilities and counterfactuals, that’s a fair point. I will have to leave it up to readers to judge which effect might dominate.


            • FERGUS O'ROURKE ,


              The practical impossibility, apparently, of doing much about transfer-pricing need not be an obstacle to a “political gesture” in that area 🙂 !

              In fact, though, what I had in mind was some of the more abstruse stuff utilising “double-dips” and the like, which understandably gets up the nose of the tax collectors in the big EU states whose tax-bases are eroded thereby.

              And the infamous CCCTB would, I suspect, be seen in a different light in Ireland if the MNC profits were being reported in “France & Germany” due to dodgy transfe-pricing.

              All of which, for some reason, prompts me to wonder, yet again, why the companies dominating food retailing in Ireland *still* get away with hiding their financial results. We can’t blame CJH & Ben Dunne for ever.

              • Michelle ,

                Question: If they offered to forgive all of our debt, and in return they controlled our interest rate; would that be worth taking?

                • Niall Hurley ,

                  What would be ideal would be if the government said that if we are willing to commit to reducing Irish welfare (fraud) by 1bn euro per year would they lower the interest rate. In any corporate context if a company cut costs to it’s credit spreads to tighten. cutting social welfare payments and reducing fraud and motivating people to work has a multiplier effect. raising the tax rate does not. it would be a shame to see our politicians give in on this point. i think this would cause significant unrest in ireland and rightfully so.

                  • Eamonn Moran ,

                    “Let’s be very generous to our EU partners and leave aside entirely revenues raised from corporate taxes – in effect, let’s assume the new changes don’t really affect existing FDI” Hi Ronan, I dont think you are being very generous at all. You are assuming that if there was an increase in Corporate tax rate from 12.5 to 17.5% there would be a zero net effect. I am saying that in year one there would be an increase of about 1.6 billion in corporate tax that would likely reduce over time as FDI decreased( and we would also have to factor in the costs to workers and shareholders and consumers which I think would be very small). Your assumption is that it would reduce the full impact of the increase immediately which I think is unlikely.

                    • Laura ,

                      Transfer pricing and repatriation of profit to take advantage of lower taxes isn’t really Ireland’s call – its ultimately up to the “home” countries who permit these profits to shift offshore. France and Germany should therefore be lobbying the US and UK, not Ireland.

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