#G8: Taxation should remain focused on capital and employees not where sales are generated…

Sammy Wilson’s negative comments re the Republic’s tax regime at the weekend, just before the G8 convened, was clearly jumping on board mumbling from the US Congress, and Westminster PAC…

…the British government does have some leverage on the Irish Government there, because they have a £7.5 billion loan, that is a lot of leverage. They should be saying to the government in the Republic, you cannot steal tax revenue from us in this way and that is in fact what has been happening.[emphasis added]

[Maybe that’s the reason Sammy’s bid to get Corpo Tax ramped down from Westminster is working so well? – Ed]

Yesterday, Senator Daragh O’Brien of Fianna Fail responded…

….perhaps the most concerning element of Minister Wilson’s intervention is the apparent contradiction between his comments and his previously expressed support for the campaign to reduce Northern Ireland’s corporation tax rate to bring it in line with the Republic.

Well, quite. Though Sammy is not known for nailing any flag to the political flagpole that cannot be quietly taken down afterwards [like Sammy’s signature on EDM 850? – Ed]. And he always has his weather eye open for any useful base pleasing passing bandwagon.

As Oliver Hill notes in the Telegraph, the immediate trigger for this particular bandwagon was Google’s recent grilling in Westminster:

Google’s tax arrangements have been at the centre of a public row over corporate tax after it emerged that the company had generated $18bn of revenue in Britain from 2006 to 2011 but only paid $16m in taxes to British authorities.

Though in yesterday’s FT, Eric Schmidt noted that it was the UK which pioneered some of the tax engineering that brought some substantive successes:

The UK led the way in Europe in the 1980s, with generous manufacturing incentives for carmakers. Nissan, for example, was given land at heavily subsidised rates to build its assembly plant in Sunderland. Thirty years on, this Japanese company is a mainstay of the UK’s manufacturing base, as well as a beacon of “British” productivity and innovation.

He went on…

It is why many European countries have created tax incentives specifically to encourage investment in research and development and intellectual “capital” – the ideas and innovation that are critical to many companies’ success in today’s information economy. In the UK, both the Labour party and the Conservatives have supported the idea of a so-called “patent box”, a tax incentive that was finally introduced in April and which halves corporation tax on profits from patented inventions to just 10 per cent. That is lower than Ireland’s headline rate of 12.5 per cent, and way less than Google’s overall global corporate tax rate of 19 per cent in 2012.

Still reading Sammy? The tax haven (a large number of the genuine articles of which are in British Overseas Territories) accusation against the south doesn’t stand up as anything more than a political play in Congress. It is nonetheless worrying for Ireland that has such deep links into US corporate business. As Arthur Beesley notes this morning:

…something which could yet cause problems for Ireland, given persistent political attacks in the US against the tax strategies deployed in Ireland by Apple Computer and other big multinationals.

Although Taoiseach Enda Kenny insists Ireland has nothing to fear, the reputational damage from the Apple revelations is quietly acknowledged in Dublin. As world leaders seek to boost their battered finances by collecting more tax from increasingly profitable big business, small tax payments from certain major multinationals expose Ireland to assault.

A paper published by the OECD (A step change in Tax Transparency) this morning and commissioned by the G8, poses perhaps a more direct threat to the Irish economic situation by proposing to tackle base erosion and profit shifting.

Angel Gurría, OECD secretary general:

“We will also need to close the tax avoidance loopholes used by multinational corporations, create a level playing field and help governments – – in developed and developing countries alike – to raise the revenues they need to provide their citizens with the services they deserve.”

The point made by John Gulliver on Morning Ireland this morning is a clear one. According to him the UK and France are looking for a cut corporate on profits and sales away from from the country is which they are headquartered…

[Ireland] should definitely steer clear of going down the sales route. I mean it is quite clear that what Europe has for sales tax is VAT. That’s an end user tax on people who buy the eventual product. The key is to look at who’s got the employees, who’s got the capital, who’s got the real base?

Some countries are better at certain industries than others. For example the UK has a very strong financial services base, a very strong car industry. So leave the car industry there, leave it in the UK [and let Ireland] play to our strengths.

Odd that no northern Irish nationalist voice was raised in defence of the Republic’s tax regime, although Gerry Adams did manage to extract his own clownish revenge on the DUP Finance Minister whilst they were waiting for the arrival of the President of the United States…

Mick Fealty

Mick is founding editor of Slugger. He has written papers on the impacts of the Internet on politics and the wider media and is a regular guest and speaking events across Ireland, the UK and Europe. Twitter: @MickFealty