Ireland is a pain in the side for the EU which is largely dominated by socialist politicians who believe in big government and policies of high taxation, part for the purposes of redistribution of wealth, part to pay for monuments to themselves and part to provide a social security, healthcare and education system.
It’s the redistribution of wealth part that upsets people: French farmers love it; others, less so unless they are also beneficiaries.
Ireland did very well out of EU funding for all manner of projects and turned itself into what was called “The Celtic Tiger” – intended to suggest that it was a version of the Far East’s tiger economies. But the fact is that it grew so fast because it was highly subsidised from across the EU. The result was massive immigration to fill jobs that were plentiful and ridiculous inflation, in particular in house prices. And Ireland still managed to keep its corporate and individual tax rates enviably low – although it did remove the previous 100% exemption for income from the arts which meant that authors, musicians and artists had lived tax free.
The EU support schemes dried up shortly before the USA caused a global financial crisis. Ireland was especially hard hit, in part because Ireland became the European base for US companies, many of which can’t get their heads around the fact that Europe is not a country, So when US companies retracted, Ireland saw many US-dependent jobs evaporate. There was a mass exodus of many of those who had turned up for the now-proven unsustainable jobs growth.
When Ireland needed a bail-out, the price was that it abandoned its plans for ever lower tax rates. Across the EU, countries are complaining that Ireland is buying their businesses out from under them. And there is some truth in that: companies are leaving their high-cost plants in Europe (where they get tax relief at high rates) but moving their legal domicile into Ireland. That means they are able to make their sales from a low tax jurisdiction but pay their bills in high-tax (and therefore high allowance) jurisdictions.
Now Ireland has paid back its bail-out money, it says it’s going to return to its low tax policy. That’s fine so long as it doesn’t ask for EU grants or subsidies. It’s time that EU countries started to stand on their own feet, not being dependent on shuffling money around from state to state to favour particular market segments. But that’s by the by: the fact is that companies that are not dependent on the land or what is on it or below it will always be able to move some of their activities to more beneficial environments.
This is not dissimilar, in principle, to the arguments that Starbucks, and others, are making trading profits in the UK, for example, but using accounting devices to send those profits to the USA (or somewhere else) without paying the tax that such profit would ordinarily suffer in the country of generation.
So, I’m banging my head against the wall. While some are becoming agitated, I’m shaking my head. Why don’t people listen when they are first warned? And why do they listen to people that are now reading in the newspapers that it’s happened and are standing up opining from the standpoint that it’s happened and we must deal with it? It would have been possible, instead, to have been prepared for it more than a decade earlier.
I outlined these schemes, including the use of intellectual property as a vehicle for what amounts to but is not legally transfer pricing in How Not To Be A Money Launderer (1998, 2nd Edition) . The book’s still available via Amazon’s worldwide network in both paperback and ebook.
Seriously, there are times when I wonder why I bother…. Then again, if just one client doesn’t end up in trouble because someone there recognised that preparation is better than cure, I’ve done my job.
©2013 Nigel Morris-Cotterill
All rights reserved