The Organization for Economic Cooperation and Development (OECD) released a plan last Tuesday that will “change the rules of the game” to prevent corporations from shifting profits between different countries. At the same time, Washington has said it plans to crackdown on firms relocating to lower tax jurisdictions.
Both moves take aim at Ireland’s pro-business tax policy, which has attracted hundreds of foreign firms to the Emerald Isle and has been a key factor in Irish economic success. Ireland’s extremely competitive 12.5% corporate tax rate has directly created over 150,000 jobs in Ireland and is a major reason for Ireland’s economic growth reaching seven times the European average.
Irish policies have also seen the nation place highly amongst rankings measuring competitiveness. The 2013 International Property Rights Index (IPRI) ranked Ireland 13th for Legal & Political rights and 15th for Intellectual Property Rights (out of 131 countries). In a recent report released by the Tax Foundation, Ireland ranked second for tax competitiveness amongst OECD countries. The U.S. was ranked 32nd (out of 34 countries).
President Obama announced Monday that he would take new steps to punish firms that relocate offshore. This move would prevent corporations from moving to more competitive business environments such as Ireland by making the process more complex and costly.
In the past, President Obama has branded firms that leave the U.S. as “unpatriotic”, however he remains unwilling to seriously consider the root of the problem – the high US corporate rate, which at 35% is almost triple Ireland’s rate and is one of the highest in the OECD.
Meanwhile, Director of Tax Policy for the OECD, Pascal Saint-Amans, took aim at Irish policy by suggesting Dublin could not defend its low tax rate without removing some of the more controversial provisions, and that changes to the current budget “make sense”.
Despite pressure to water down its tax code, Dublin is standing firm.
On Sunday, Jobs Minister Richard Bruton publicly ruled out early changes to the tax system and reiterated that while Ireland will work with the OECD, it will not be pressured into reducing Ireland’s competitiveness. In separate comments, Anne Anderson, Irish Ambassador to the U.S. said that the 12.5% corporate tax rate that is crucial to Irish competitiveness will remain as a “sovereign right”.
While the decision against early changes to the tax code is good news, it appears inevitable that the OECD will force Ireland to modify its business policy. For its part, Dublin has indicated its willingness to compromise on the more controversial provisions once the OECD report is completed. However, given the recent economic success of the Emerald Isle, other countries including the U.S. should consider emulating Ireland rather than demonizing it.