Monday, May 21, 2007

All For One But Not For Eire

The point of a union of European nations was to make them equal, or at least as equal as necessary to achieve some sort of financial might. And it's a work in progress, this European Union, which means that the highest hurdles are being reached. And being stumbled over.

Ireland set its corporate tax rate at 12.5%. Multinational firms flocked to Ireland to set up shell companies to become sinks for profits, which could then be taxed at the low Irish rate and there's more for the executive bonuses come Christmas time. The knock-on effect of a low tax rate has been nothing less than dazzling for Ireland, with a resultant boom in the economy that turned the country around so fast that heads are still spinning in Clondalkin and Bunratty.

Peer Steinbruck, EU finance minister and dour German, has looked across the water and seen that Ireland is making hay while the sun shines, but it's cloudy weather over the rest of the continent. So there's one EU member that's doing head and shoulders better than the rest, and isn't that what the union of European nations was supposed to prevent? Time to put a stop to it, and bring Ireland back into line with everyone else.

Mr. Steinbruck is calling for a tax equalization scheme, so that all EU members are charging the same amount and once again they could all be equal. There should be no winners and losers, therefore there must be harmonisation, a single corporate tax base for all. Wouldn't that be better, Berlin suggests, because this would boost the single market and companies could avoid dealing with 27 different sets of laws. Berlin is surely aware that companies avoid dealing with 27 different sets of laws by going to one place, Dublin, but it doesn't look very nice to come out and begrudge your neighbor's success.

The Irish Taxation Institute is hard-core against any such tax harmonisation, which they say will not reduce costs for companies but increase them. Clearly, the taxes paid by Dublin based shell companies would be increased if the tax harmonisation scheme goes through. And when the bean counters finished calculating, those same companies will close up their little offices and move on to the next tax haven, taking their profits with them. It's all to lose for Dublin, and they'll be fighting like savages to hang on to the engine that drives the Celtic Tiger. As for the rest of Europe, well, it's obvious, isn't it? Don't try to inflict your continental short-sightedness on the rest of the member nations. Lower your own tax rate and join the party.

1 comment:

Milton Friedman said...

I agree. If you're losing in a game you don't ask the refs to change the rules of the game but instead compete harder. If Germany wants to keep and attract corporations they should lower their corporate tax, not make everyone else raise theirs.