Low taxes alone not enough for growth, says OECD

Chief economist says clampdown on tax avoidance will be ‘negative for Ireland’

Ireland will have to sell itself as more than just a low-tax destination in the new era of global tax transparency, OECD chief economist Catherine Mann has said.

She said moves to better align taxable profits with real economic activity envisaged under the OECD’s Base Erosion and Profit Shifting (Beps) initiative would be a “negative for Ireland”, at least initially.

This was because of the large number of multinationals based here for tax planning purposes, she said.

“[In the future] Ireland is going to have to seek real investment based on comparative advantages other than tax,” Prof Mann told a conference on tax policy hosted by the Department of Finance.

Ireland has been at the centre of controversy over multinational tax because of the aggressive strategies used by companies such as Apple and Google.

The final package of measures proposed by the OECD as part of its Beps project will be presented to G20 leaders in Turkey this weekend. They are designed to improve transparency, close loopholes and restrict the use of tax havens.

Lagging behind

“Global capital has come into Ireland – and that’s a good thing – but somehow it hasn’t translated into Irish-owned firms,” Prof Mann said.

She said Irish-owned enterprises lagged behind their foreign counterparts across a range of productivity metrics, most notably research and development.

“The patents are here, but they’re not being linked into the domestic economy, not being levered up by domestic firms or married to domestic workers.”

Despite housing some of the most innovative firms in the world, Ireland has one of the lowest domestic spends on R&D in the EU.
The Government was going to have to tune its tax system to boost productivity and deepen the relationship between intellectual property and the domestic economy, she said, noting the proposed patent box could play a significant role.

She said the OECD’s latest productivity report pinpointed a major skills mismatch in Ireland, with a lot of workers overqualified for the current jobs.

This was most likely a legacy of the downturn, she said, which made workers less likely to move due to the uncertain economic environment.