Morning Note: Corporation’s Irish Tax Luck To Run Out?
St. Patrick’s Day is a celebration of all things Irish. For U.S. multi-national businesses, it may well be a day to toast Ireland’s corporate tax rules.
Ireland has one of the lowest corporate tax rates in the Western world – 12.5%. That’s compared to corporate rates between 30% and 34% in Germany, France, and Belgium. The top marginal U.S. corporate tax rate is nearly triple Ireland’s at 35%.
Moreover, Ireland’s relatively lax tax rules regarding the transfer of paper assets have long been a gold mine for U.S. companies. Tech giants such as Google have saved billions by using what corporations call “The Double Irish Arrangement” – a process by which companies funnel money through Irish holding companies to capitalize on Ireland’s generous tax structure.
But corporations’ Irish luck may soon run out.
After bailing out the nation to the tune of $113 billion, the European Union is demanding Ireland raise its corporate taxes, bringing them in line with the rest of Europe. This week, the EU proposed a new tax system called the “Common Consolidated Corporate Tax base” that would essentially prevent EU countries for setting their own tax rate.
Irish officials have spoken against the plan, saying that it would cripple business investment in the country at a time when its economy needs it most. Intel threatened to leave the country and take 500 jobs with it if the tax rate is raised.
“It would be suicide for Europe to require Ireland to raise the tax rate to be equal – companies have threatened to leave Ireland if the rate is increased,” said Fast Money’s Brian Kelly, founder of Kanundrum Capital. “If the tax rate is raised and corporations flee, then tax revenues disappear and Ireland cannot pay the bailout debt.”
That said, Kelly doesn’t believe Ireland will get to maintain its current corporate tax rate.
“I think that Ireland will have to adjust the tax code and raise it a bit, but not to the level of other European nations,” Kelly said. “The headlines now are simply posturing – Ireland wants a lower bailout rate and Europe wants it to be more competitive.”
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CNBC.com with wires.