ECB and Inflation

[Threviel]

Why not just close loopholes?  What you're proposing is even worse than the existing situation.  Sure, you might get a bit of money out of those who can afford it, but the effect on regular people will be so much worse.

Some loopholes don't necessarily involve just one country.

Apple, for example, sets up a corporation in low tax Ireland (within EU) to which it assigns patents. Then Apple Spain (or Apple UK) licenses said patents and sells its crap to local customers. The result is that Apple Spain generates a shitload of revenue, yet operates at a loss. This not only deprives the state of revenues but puts local firms at a disadvantage.

If Spain feels that Apple Spain is playing them false, then yank their charter.

It's an EU wide issue, and the main reason why the EU is putting a lot of pressure on Ireland to increase their corporate taxes.

So... Ireland has low taxes. Therefore the job of the EU is to make sure that their taxes are raised to accomodate badly run countries like Spain? Shouldn't the pressure be on Spain to get it's shit together?

It is not a matter of getting shit together, it's a matter of distorting the internal EU market through borderline (if not outright) tax haven practices that give international corporations loopholes to take their inmense profits home without leaving almost any taxes in the countries where they actually conduct their business. This hits Luxembourg as well.

Or Spain could compete with Ireland on lowering corporate taxes. But of course, much easier to punish Ireland than to change something in Spain.

[The Larch]

Great, a race to the bottom, just what our economy needs!

[Sheilbh]

But tax evasion isn't just about rates. Ireland gets picked on over this and shouldn't budge. Far worse offenders are the Netherlands, Austria and Luxembourg, despite having higher headline rates.

[Sheilbh]

Great, a race to the bottom, just what our economy needs!

Surely that would be making Ireland less competitive and more expensive to do business in - while they're going through their own economic crisis - because other countries can't keep up?

[Zanza]

Or Spain could compete with Ireland on lowering corporate taxes. But of course, much easier to punish Ireland than to change something in Spain.

Ireland can afford the low corporate tax rate for reasons that Spain and other countries cannot emulate and can never compete on.

Ireland has just 4.6 million people to Spain's 46 million people. So let's assume that Spain roughly needs ten times the government revenue that Ireland needs.

There is a finite number of multi-national corporations in the world and they typically need just one HQ in the EU due to it being a common market.

As Ireland just needs a tenth of Spain's government revenue it can compensate a low tax rate for its domestic corporations by enticing a higher than proportional number of multi-nationals to open shop in Ireland and paying taxes there.

Spain cannot do that as it will never be able to attract enough multi-nationals to offset the loss in tax revenue for lowering the tax rate for its domestic companies to match Ireland's low rate.

And if you look beyond Spain, Ireland has less than 1% of the EU population. For simplicity sake, let's assume the EU was perfectly equal in tax revenues and government expenditures. If a tiny piece of the EU attracts a lot of multi-nationals through a low corporate tax rate, the other 99% of the EU can't just lower their tax rate accordingly and hope for multi-nationals to somehow materialize out of nowhere and start paying taxes to compensate. Mainly because there just aren't that many multi-nationals.

Ireland is only in this position thanks to their membership in the EU. But they exploit that by establishing a policy that the bigger EU countries cannot enact themselves. The only other countries that can compete on this policy are typically considered tax havens as well, e.g. Luxembourg.

[Ideologue]

But tax evasion isn't just about rates. Ireland gets picked on over this and shouldn't budge. Far worse offenders are the Netherlands, Austria and Luxembourg, despite having higher headline rates.

There should only be one European tax policy.  There should be only one American tax policy, but that's a different issue.

God, federalism is so fucking stupid.

[Zanza]

But tax evasion isn't just about rates. Ireland gets picked on over this and shouldn't budge. Far worse offenders are the Netherlands, Austria and Luxembourg, despite having higher headline rates.

Fine. Make them change their tax regime as well.

And we should shut down all those pseudo-independent tax havens while we are at it. We should not rest until the twelve golden stars on azure are hoisted over tax havens from Jersey to Monaco to Liechtenstein. I hope Europe grows some Imperial spine in this regard soon. We should then partner with the Americans and smoke out the rest of the tax havens in the world.

[Admiral Yi]

You know Zanza, I'm not usually a fan of tax harmonization arguments but you make a decent case above.

[Threviel]

You know Zanza, I'm not usually a fan of tax harmonization arguments but you make a decent case above.

Seconded.

[Ideologue]

But tax evasion isn't just about rates. Ireland gets picked on over this and shouldn't budge. Far worse offenders are the Netherlands, Austria and Luxembourg, despite having higher headline rates.

Fine. Make them change their tax regime as well.

And we should shut down all those pseudo-independent tax havens while we are at it. We should not rest until the twelve golden stars on azure are hoisted over tax havens from Jersey to Monaco to Liechtenstein. I hope Europe grows some Imperial spine in this regard soon. We should then partner with the Americans and smoke out the rest of the tax havens in the world.

Mirage IVs and B-52s flying together.

[Ideologue]

The Mirage IV was retired from the nuclear strike role in 1996, and the type was entirely retired from operational service in 2005.

Oh, so it's America does all the heavy lifting again.  Euros.

[The Larch]

For the record, I don't mind Ireland setting low corporate taxes for companies that actually operate there, no argument from me in that regard, it's their country and they set the rules there. What I oppose is funneling all EU sales through them for stuff that is not actually sold there. I don't know how EU tax regulations work in that regard, and maybe my way of thinking about this is outdated, but if Apple (or Amazon, or some other retailer) sells stuff in countries A, B, C and so on, each of their units should pay taxes in countries A, B, C and so on for their profits made there, not in country L where all the profits from their operations all over the EU are collected, but where only a tiny amount of EU sales are actually made.

[The Larch]

Another example about corporations taking advantage of this, maybe a bit more unrelated. A few months ago Ryanair was fined by a Spanish court to pay a smallish fine (several hundred euros) for some shenanigans that prevented a passenger to board a plane because they required unnecessary documents for that, so they had to give the passenger the money back and a small amount of compensation. Ryanair didn't even bother to appear on court, and ignored the court's demand for payment, so the judge ordered to seize the money from their bank accounts. They weren't able to collect the money because Ryanair's Spanish bank account only had something like 75€ at any given time.

[Sheilbh]

Ireland can afford the low corporate tax rate for reasons that Spain and other countries cannot emulate and can never compete on.

Ireland has just 4.6 million people to Spain's 46 million people. So let's assume that Spain roughly needs ten times the government revenue that Ireland needs.

One of those reasons is that Ireland chose to have a small state. Until the crisis hit Irish government spending as a percent of GDP was well under 40%. The tax needs of a comprehensive Nordic social system and a bare-bones Anglo-Saxon one are entirely different.

This is like one of those abstract questions about how high or low taxes should be. What do you want government to do is the first bit, then you work out how to pay for it.

There is a finite number of multi-national corporations in the world and they typically need just one HQ in the EU due to it being a common market.

As Ireland just needs a tenth of Spain's government revenue it can compensate a low tax rate for its domestic corporations by enticing a higher than proportional number of multi-nationals to open shop in Ireland and paying taxes there.

There's no doubt a low corporation tax is part of the attraction of Ireland, but there's significant other factors. The biggest as you say is probably market access. But even those two don't explain Ireland's success - lots of Eastern European countries have very low corporation tax rates, Bulgaria and Cyprus have the lowest rate in the EU at 10%, even Greece is below average at 20.8%.

In addition to that however Ireland has a liberal, stable system of regulation and doing business and a well-educated, English speaking workforce. I mean the percent of the Irish workforce who've completed some form of higher education is 87%, in Spain it's 65%. As well as that I think Ireland's proven far more comfortable and open to some aspects of the single market than other countries in Europe. They were only country to entirely open their labour markets to the new accession members. So in Ireland you have a well-educated, English speaking, flexible labour market into which it's uniquely easy to attract workers from all over Europe.

As well as that flexible labour market Ireland's got a very transparent, stable and liberal system of business regulation in general and a trusted, non-corrupt legal system. Overall they're ranked 15th in the World Bank's ease of doing business survey (up with the US, Singapore, UK and Nordic states) in comparison to France at 34, Spain at 44 and Italy at 73. A useful part of this regulatory system is a set of very attractive tax credits for R&D.

I don't see Ireland as some predatory country rather they've looked at the fact that they're a small country with no natural resources to speak of and successive governments have instead focused on what they can do to make themselves attractive to business. They're not like Jersey with hundreds of companies with no more than an address (the ECJ recently ruled on this actually). Many of the businesses who have European headquarters in Ireland really have a significant presence there - Pfizer have since 1960, Apple since 1980 (both back in the bad old days when corporation tax was over 40% which again suggests tax isn't the sole, or even the main motivator), Google have just built the tallest building in the country for their HQ and all told American high-tech firms employ over 100 000 people in Ireland. As you note that's a country of 4.6 million, it seems perverse for the EU to chip away at one of their advantages.

It's worth noting that Ireland does this despite very high personal tax rates and one of the highest VAT rates in Europe. I believe the former recently deterred Goldman Sachs from doing too much there

Spain cannot do that as it will never be able to attract enough multi-nationals to offset the loss in tax revenue for lowering the tax rate for its domestic companies to match Ireland's low rate.

Surely the answer isn't to pick out the mote in Ireland's eye but fix the beam in your own - liberalise, open markets, educate your workers and, yeah, reduce business taxes. Almost all of that is within Spain's powers and doesn't necessarily cost a lot. Even cutting corporation tax isn't a problem, headline rates across Europe have fallen from averages of over 40% to around 25% over the last couple of decades - Ireland's gone further, faster but that's all. For most countries now corporation tax is a comparatively small part of the revenue take.

When you look at effective average tax rates Ireland does have lower taxes but it's not as significant a difference. The EU has an average of around 20% and Ireland's is around 14.5%, which is around the level of Greece.

I also think a significant part of this problem could be solved by tax reform in the US, the UK, Germany and so on. The ECJ have said that in balancing the freedom of establishment and dealing with tax avoidance you can stop foreign subsidiaries with an artificial presence. But I don't think there's the political will to do it because so many American, British, German and so on companies benefit lax laws here.

You know Zanza, I'm not usually a fan of tax harmonization arguments but you make a decent case above.

We need tax rules harmonisation. The same accounting rules, the same levels of transparency and information sharing so companies and individuals can't ferret money away. But none of that would really trouble Ireland.

What I oppose is funneling all EU sales through them for stuff that is not actually sold there. I don't know how EU tax regulations work in that regard, and maybe my way of thinking about this is outdated, but if Apple (or Amazon, or some other retailer) sells stuff in countries A, B, C and so on, each of their units should pay taxes in countries A, B, C and so on for their profits made there, not in country L where all the profits from their operations all over the EU are collected, but where only a tiny amount of EU sales are actually made./

Apple and Amazon actually do that via the Netherlands because they have a tax treaty with, I think it's Bermuda. Ireland doesn't so if you funnel money via Ireland there's still a 20% withholding tax. If you funnel the money through Ireland to the Netherlands and then to Bermuda then that can be avoided.

Another example about corporations taking advantage of this, maybe a bit more unrelated.

That's just yet another example of Ryanair and Michael O'Leary being dicks

[Iormlund]

Surely the answer isn't to pick out the mote in Ireland's eye but fix the beam in your own ... reduce business taxes.

Right. Because wanting rich people to actually pay taxes is undesirable. Much better to tax the middle classes instead.

Even cutting corporation tax isn't a problem, headline rates across Europe have fallen from averages of over 40% to around 25% over the last couple of decades - Ireland's gone further, faster but that's all. For most countries now corporation tax is a comparatively small part of the revenue take.

Maybe corporation tax is such a low part of the revenue because a) we've been in a race to the bottom for a long time now and b) during a crisis there is not that much profit for SMEs and multinationals can squirrel their gains away.