Corporation Tax

October 20, 2010

Is Corporation tax a sacred cow in Ireland, another tool to fleece citizens and taxpayers in our hour of need?

http://bit.ly/69BZhi

“The standard rate of Germany corporate tax in 2010 is 15%. There is a reduced rate for part of a corporation’s income.

An additional tax has been imposed to help the merger of the two Germanys. This is “solidarity tax” which is 5.5% of the normal rate payable. The tax is levied on corporations and individuals, subject to the conditions specified in the law.

In 2010 the effective corporate tax rate, including trade tax and solidarity tax is about 30%-33%.”

Perhaps in our time of dire need we need to copy the example of Germany above and introduce a “solidarity tax” that would set the rate for four years and effectively healthily increase the rate of corporation tax paid by multinationals in Ireland.

corporation tax 12.5%
solidarity tax 7.5 %
total: 20%

This would still leave us under equivalent rates in Germany.

Yes, our status as a tax haven would be reduced. On the other hand, we can’t be very attractive to foreign investors given the present state of the economy and the banks.

So we may not lose out to multinationals currently looking at Ireland as a destination for investment.

Raising corporation tax would be taken as the contribution of multi nationals to stabilising of our economy, obviously in their interests also.

Increasing corporation tax flagged as a measure to stabilise the economy should imho be on the agenda.

http://bit.ly/8YGppx

http://bit.ly/8ZUtQZ

Perhaps we need to fix the hole first  and our total tax burden more fairly shared.

Germany did this when it faced up to the cost to East/West Germany and the coming down of their Berlin Wall.

The only argument I can see against a 20-25%% rate is the paper money side of corporation tax where goods and services provided and produced by a multinational elsewhere, get arrogated to its taxable account registered in Ireland against the Irish corporation tax rate. Part of the invisible world of international finance.

In the worst scenario, a corporation can relocate at the push of a button, say to eg Montenegro with its 10% rate. But 20-25% would still significantly appear beneath the european average and there has not been significant flight of corporations fleeing other european countries due to their more reasonable rates.

Bottomline, the argument that 20-25% tax rate would scupper our ability to attract jobs, against the argument of the billions that this would save us, translated into the job losses this will cause if citizens alone have to pay for it,  just does not stand up!

Germany again:

In addition to regular tax, there is a municipal trade tax of 14%-17% that is imposed by the municipality.

http://bit.ly/69BZhi

“The standard rate of Germany corporate tax in 2010 is 15%. There is a reduced rate for part of a corporation’s income. An additional tax has been imposed to help the merger of the two Germanys. This is “solidarity tax” which is 5.5% of the normal rate payable. The tax is levied on corporations and individuals, subject to the conditions specified in the law. In 2010 the effective corporate tax rate, including trade tax and solidarity tax is about 30%-33%.”

http://bit.ly/34BF3c


Solidarity surcharge:

http://bit.ly/9Pa3ye

“On top of income tax, the so-called solidarity surcharge (Solidaritaetszuschlag) is levied at a rate of 5.5% of the income tax for higher incomes. Up to €972 (€1,944 for married couples) annual income tax, no solidarity surcharge is levied. Above this threshold, the solidarity surcharge rate increases continuously until it reaches 5.5% when the annual income tax is €1,340.69 (€2,681.38 for married couples).

For example, if €10000 income tax result from a certain annual taxable income, a solidarity surcharge of €550 will be levied on top. As a result, the tax payer owes the taxation office €10550.”

Tax rate:

http://bit.ly/chZbWU

“In 2008 is corporate federal rate of tax in Germany 15 % (in 2007 was 25 %). The corporations must pay trade tax too. Trade tax is charged by the local authorities, who are entitled to the entire amount. In 2008  trade tax = 14 %. The corporations must pay “solidarity tax”, which is 5.5 % of the normal rate payable. The tax is levied on corporations to the conditions specified in the law. Effective corporate tax rate, including trade tax and solidarity tax is 29 % – 32 %.

Germany Corporate Tax

The basic 2009 corporate federal rate of tax in Germany is 15%.

A “business tax”, payable to the municipality, is added to the tax. A company that operates in a number of cities pays business tax according to the location of its employees in the various cities.Taxable income for the purposes of “business tax” may be adjusted for purposes of calculating the basis on which “business tax” is payable.”Business tax” is an allowable expense for purposes of calculating the income on which corporation tax is payable.

Corporation tax in the US http://bit.ly/cJFw3U

Fuller discussion here:

“In May 2004, for example, French and German officials denounced the “unfair competition” posed by new EU members’ low corporate tax rates and urged the EU to set a minimum corporate tax rate for all members, but they were unable to secure the unanimous support required for adoption of their proposal.[10] The idea was not a new one in European discussion. In 1975, the European Commission published a draft directive suggesting harmonization of corporate tax rates in the 45-55 percent range; in 1992, a committee appointed by the commission recommended harmonization in the 30-40 percent range.[11]

Former treasury secretary Lawrence Summers embraced this viewpoint in a December 18, 2007, speech, in which he advocated international cooperation and tax harmonization. While acknowledging that countries like Ireland have benefited by lowering corporate taxes, he contended that their gains have come at the expense of other countries.[12]”

Corporation Tax in the UK

financial sector examined

http://eprints.ucl.ac.uk/14904/1/14904.pdf

There’s no doubt in my mind given Ireland’s dire financial straights, that Ireland’s CT rate is far too low. An increase to a more reasonable 20-25% would still make rates in Ireland competitive in line with other member states of the EU. Multinational corporations locating in Ireland with an indigenous, highly educated and smart population, do not have to be offered tax haven CT rates that are so far beneath the european average as to be a ridiculous giveaway of our stability and financial health. Ireland’s health and educational infrastructure and current fiscal problems require supporting.

A 20 -25% corporation tax that would contribute a further €5-6 bn annually to our economy is required to stave off possibilities of default. We need to build a stable base for our economy that can be a rock for corporations trading out of Ireland looking to the future.

 

Summary

Some myths, a pile of multinationals would leave Ireland.

Why would they, with all the infrastructural money spent on roads, education, health in Ireland over the past two decades – too little I know, but enough to take us beyond states such as Bermuda in the Caribbean, or even Montenegro closer to home. We’ve a highly educated population and we are established members of the EU – Sofar:)

Its part of a sacred cow Irish mentality that speaks inferiority complex to approach CT as if it were the apple in Ireland’s garden of Eden. No, it ain’t.

Arguably, Ireland’s multinationals have been getting too free a ride from Ireland INC. It’s time we stood up for ourselves and showed a bit of cop on internationally if not locally.
We ain’t behoven to a shibboleth CT complex that runs in fright at the thought of increasing CT.

Look at the evidence and facts surrounding CT in the EU.
http://bit.ly/aOTAvb


“Average corporate tax rates in the EU fell by 0.28 percent to 25.04 percent in 2005, thanks to rate cuts in six EU member states including France, Greece and the Netherlands. This compared with average rates of 28.31 percent for the OECD countries, 28.25 percent for Latin America and 29.99 percent in the Asia Pacific region.  In the UK, the rate was unchanged at 30 percent.”

Average, yes 25% plus.

What you find is CT is often part of a broad range of other taxes that are added to CT that jump the tax take back to the state.

Germany, for example, see link below adds a broad range of other mandatory taxes eg municipal taxes, solidarity taxes to its low rate of CT 15% bringing the total closer to 30%, ‘real’ amount of CT when other taxesare added.
As part of the fright night Hammer horror fear of touching CT, the scenario of fleeing multinationals is often prescribed:) This is another myth. Across the UK, Germany and the EU there has not been a fleeing of multinationals due to their ‘high’ CT tax rates.
If we havn’t the confidence and self belief in ourselves to raise the CT to a decent 20-25% at least, we should shut up shop.
The IFSC might have been an argument at one point to retain the rate of CT to 12.5% in the hope of a bonanza of invisible corporate financial finance flying under the table to Ireland.
Lehman’s and Ireland’s recession plus the ending of the financial  derivative serving industry in Wall Street and worldwide has put paid to that argument. Plus it’s not clear we ever made money out of that CT aspect of IFSC in the first place.
Raise the CT to at least 20-25% and allow multi nationals in Ireland make a contribution to the restoration of Ireland’s dignity through a national solidarity tax.

end:)^o^

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