Pressure mounts on Ireland’s corporate tax

Can Ireland continue as a low-tax country?

Ireland has some of the lowest corporation tax rates in the EU, which, in the good times, had multinational companies flocking to its shores.

But as the Irish economy has worsened, warnings have multiplied that the rates need to rise to stem the country’s debt crisis.

At 12.5%, Ireland’s corporation tax is barely half of the EU average of 23.2%. In the eurozone, the average rate is even higher, at 25.7%, according to the European Commission’s 2010 Taxation Trends report.

Two EU member states have corporation-tax rates lower even than Ireland’s. In both Bulgaria and Cyprus the rate is 10%.

This compares to corporation tax rates of at least 30% in Belgium, France, Germany, Italy, Malta and Spain.

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In September, Olli Rehn, the European Commissioner for economic and monetary affairs, said: “Ireland will not continue as a low-tax country; rather it will become a normal-tax country in the context of the EU.”

That sentiment has been repeated frequently by EU sources as Ireland’s crisis has intensified.

German government spokesman Steffen Seibert told reporters on Monday (22 November): “One thing is clear: corporate tax is one of several issues to look at.”

But Brian Lenihan, Ireland’s finance minister, said the same day that, while other member states had “raised the issue” of the level of corporation tax, they had not placed Dublin under any “direct or indirect pressure” to raise it.

Ireland is resisting calls to raise its corporation tax rates, out of concern that any increased business costs would damage its competitiveness at such a vital time.

The government confirmed in a four-year fiscal plan presented yesterday (24 November) that corporation tax would remain at 12.5%.

The description of Ireland as a low-tax country is borne out by figures showing the total tax burden of individual member states. Ireland is one of only four countries in the EU (the others are Slovakia, Romania and Latvia) where the total tax income is less than 30% of gross domestic product.

In some of the higher-tax states, such as Sweden and Denmark, the figure approaches 50%.

EU-wide corporate tax

Yesterday (Wednesday) a cross-party group of MEPs called for the introduction of a common EU-wide corporate tax rate of 25%. Eight politicians from the Greens/EFA, ALDE, S&D and EPP groups in the European Parliament supported the declaration.

Sven Giegold, an economic and finance spokes-man for the Greens/EFA, said: “Introducing a common corporate-tax rate in Europe is the only way to limit tax competition and the damaging effects this has had on the European economy and European solidarity.”

“Ireland will clearly need support in the painful reconstruction of its economy following the crisis,” Giegold said, but added: “It is not acceptable that this support should be used to rebuild an economy based on tax dumping.”