Ireland to Phase Out Tax Advantage Used by Technology Firms
nytimes.com
nytimes.com
(N.B. I'm ironically copying the language used to describe people who are might or might not be working but still depend on government programs for food, housing, etc)
I have two friends from Ireland who work at a tech company who recently opened an office there. They love the work and say that it is easy for them and their friends to get jobs because of all the companies coming there. My company is thinking about opening a European office, and Ireland is under consideration. This move might slow or stop companies from coming to Ireland.
At a global scale, there is only law. If countries want more taxes, they have to change their laws, and be prepared to deal with the unintended consequences of those changes.
Most businesses prioritize their own market value, and subordinate all other motives, including apparent political posture, towards maximizing that one metric. Therefore, they only pay taxes to avoid the negative effects of not paying taxes, rather than out of any perceived moral obligations.
The companies are there because the optimization process that involves jurisdiction shopping determined that establishing a business presence in Ireland provided greater benefits than the other options. There can be only one "best" jurisdiction for any given business entity. Complaining that someone else's seems to be better for more entities than yours is just sour grapes.
If you can't compete on a tax cost basis, there are other ways to attract business: a zero-corruption bureaucracy, privacy or secrecy for principals, reduced reporting requirements, reduced time from initial filing to practice, ironclad and proactive intellectual property protections, strong infrastructure, rock-solid stable units of accounting, or any of dozens of other points that may provide business value that more than compensates for the tax burden.
So fairness is a red herring. It is the objective value that is provided in proportion to the taxes taken that determines whether taxes are "too high" for a business to bear.
Immensely wealthy multinational corporations have a lot of money to spend on lawyers and accountants, so while these companies are probably not evading tax the avoidance schemes they come up with are sometimes not legal requiring them to repay.
Don't forget that tax is part of law and so there is what's written and how that's interpreted by the courts. Until you've had case law there are areas of uncertainty.
It's not a hard number but perceptions of fairness are certainly important in how democratic countries formulate tax law.
http://en.m.wikipedia.org/wiki/Taking_the_piss (first sentence: unreasonable).
Perhaps you'd prefer to use the term 'electorate'.
Regardless, the meaning was clear and your objection rather ridiculous.
Wrong is a subjective value, but yes, most people feel that it's wrong.
What's wrong with that?
Companies don't exist in a vacuum, as evident in that very few companies prefer to put their offices in the middle of the sea or deep the jungle. They benefit greatly from infrastructure of our society, and it's fair that they should pay their share to build and maintain it.
Companies playing legal games around taxes is exactly the behavior that the complicated tax code incentivizes. Play games, get money. Are corporations not supposed to play? It's parallel to programming productivity measurements. If a company starts counting LOC and rewarding it, they are going to get precisely what they asked for: More lines of code.
There are a lot of people who think that much (if not most) tax dollars go to waste, so they do not want to pay because they think that taxes are funding harms to their fellow citizens and foreigners. I am one of those people, and I do not want to be responsible for hurting my fellow man.
I wonder if you would be so principled if it cost you money rather than saved you money.
I use the roads which I (and all my fellow citizens) are forced to pay for, at least partly because the government has crowded out all the alternatives. With respect to firefighters, I would be very happy to return to the system where the insurance company provided fire-fighting services, as was the case before the government took over the industry.
I have often made the case against policies that greatly benefit me (financially and otherwise), but at an unacceptable cost to others, and I am sure that I am not alone in having done so.
That also levels the field a bit in that companies large enough to run departments that optimize for such loop holes have less of an advantage over the small fellows in the garage.
Market at work, and all that.
Deleted comment
My understanding is that a number of Europeans are not all that interested in relocating to Dublin. In the medium term, if the tax advantages are nullified, I think more international offices will end up opening in London or on the continent because it's easier to attract talent.
I wouldn't be surprised if this ends up hurting tech development in Ireland in the long term.
I'm not sure there is much tech development to hurt.
"The talent pool here is much smaller than that of Silicon Valley. The single most important aspect of Silicon Valley is that it’s where many great people choose to live. Stripe’s employees come from Honduras, Kenya, India, Sweden, Canada, Austria, and more—but they’ve all chosen to live in Silicon Valley. Because Ireland has fewer of these immigrants, Irish start-ups are forced to either hire from a much more limited group, or to try to convince people to move here. (A third option is to have a geographically distributed team from the start; this route is also quite tough.)"
source: (scroll down) http://patrickcollison.com/
Seems to me that countries such as France, U.K., etc. are basically acting as robber barons.
It's about closing tax loopholes, which are separate from the tax rate. For example, Google paid just 2.4% tax a few years back, here's an excellent older article from Bloomberg on the subject:
http://www.bloomberg.com/news/2010-10-21/google-2-4-rate-sho...
Corporations sitting on multi-billion dollar cash piles, while many western governments are struggling with deficits isn't sustainable, so plugging these loopholes is likely to continue.
I'm not claiming companies shouldn't pay the proper tax, but that 2.4% tax also includes donations, employing people (which also provide tax) and what not which they can write off.
What really needs to happen, is that governments stop spending more than they make. Sure they can increase taxes, but they will also try to increase spending (defeating the purpose).
And closing loopholes to increase revenue is one way to accomplish that. You can't state with certainty that governments will necessarily increase spending proportionally -- just look at "austerity" measures.
Governments don't necessarily get into trouble by spending more than they have. If they spend only on goods and services that tend to promote sustainable economic growth, the rise in future revenues will more than compensate for that.
If you borrow 1000 kg of seed corn and then plant it on fertile land, you can pay back that ton with interest. If you borrow 1000 kg of seed corn, distill it into whiskey, then drink some and burn the rest, you will probably have some trouble with debt later.
If governments spent only on those things that provided more value to their taxpayers than simply holding on to their cash, people would actually be clamoring to pay more in taxes. But the principal-agent problem usually makes that impossible. People that spend other people's money have little incentive to do it prudently.
In the US, no politician wants to attempt true tax reform since it's basically a non-starter so instead we have a game of quick-wins. Yes, it makes the public feel good but doesn't actually help simplify the tax code to promote business and limit avoidance ROI.
By the time Ireland's new tax laws become enforceable (2020-ish), you'll see all of these companies re-evaluate their office locations within the tariff-free member states. Who knows, maybe the next Ireland will be in Liechtenstein, Turkey, San Marino, Monaco, or Andorra -- I think they are non-EU but participate in the single market.
The iterations of corporate tax avoidance are pretty fun to watch -- and even more interesting to try and understand. Can't wait to see what the lawyers cook up next:)
Deleted comment
Ireland is being pressured by EU regulators because offering lower tax for only certain companies is a form of _state subsidy_ that results in _market distortion_.
Ikea, the Swedish company that is a pioneer in now-common aggressive profit shifting practices, is not being pursued by EU since it doesn't have a special deal with the Netherlands (where Ikea has a paper company that gets all of its profit shovelled into) where it gets to pay lower corporate tax than other companies incorporated in the Netherlands.