Our tax focus should be on the EU, not US

The German-Irish Chamber of Commerce is based in discreet but elegant offices on Fitzwilliam Square in Dublin.

It has a much lower profile than the American Irish Chamber of Commerce, but in many ways it is just as important.

Ties with the US are hugely important for obvious reasons.

There are about 500 US companies in Ireland directly employing roughly 160,000 people. Their contribution to the overall economy is crucial. That is why when the OECD released its proposals on base erosion and profit shifting [BEPS] during the week, the main concern of the Irish Government was what would the implications be for US multinationals based in this country.

The Irish corporate tax regime has come in for a huge amount of criticism over the past few years. In June 2013, US Senate hearings into the tax affairs of Apple found that the tech giant had reduced its corporate tax bill to 2% through the use of a complex mechanism known as the “double Irish”.

Two prominent US senators, Carl Levin and John McCain, called Ireland a tax haven. The Irish Government deployed all its diplomatic levers to minimise the fallout from this very damaging episode.

But the biggest threat to the corporate tax regime comes from the EU, not the US.
When the former tánaiste, Mary Harney, said Ireland was always going closer to Boston than Berlin, she betrayed an astonishing lack of judgment.

Yes, US foreign direct investment is crucial for the Irish economy, but Ireland is part of the eurozone. As the recent crisis exposed, co-ordinating monetary policy is not enough to ensure the viability of the eurozone. At the very least there is going to have to be closer fiscal, economic and political integration.

For historic and cultural reasons, Ireland’s focus is still firmly fixed on Washington. But that is going to have to change.

The German-Irish Chamber of Commerce is dedicated to forging much closer ties between the two countries. To this end, it should be given all available support.

The crucial issue of corporate tax is a case in point. The junior partners in the German coalition, the Social Democrats, want a harmonisation of corporate taxes between eurozone member states. At a minimum this would include a common consolidated corporate tax base.

Indeed the social democrat Minister for European Affairs for the state of Baden Wurrtemberg, Peter Friedrich, told the Irish Examiner that if Ireland looked for relief on bank debt in the future, then his party’s position is that this could only be done if tax harmonisation formed a quid pro quo.

Germany isn’t the only country that is suspicious of Ireland’s 12.5% tax rate. They see it as fostering unfair tax competition.

But in any monetary union, capital always flows towards the core. Periphery countries need as many fiscal levers as possible.

A low corporate tax rate has been one of Ireland’s most successful policies in attracting foreign direct investment.

Financial market regulation, investment, banking union, climate change, immigration, cross-border crime are among the crucial issues facing this country over the coming years and decade.

Unless the eurozone unravels, all policy positions to deal with these issues will be developed at a region-wide level. Ireland needs to open up as many channels of communications as possible with other members across to ensure its interests are protected.

Germany is obviously the most influential member of the eurozone. Yet ties between Ireland and Germany are nowhere near as healthy as with the US.