But if Ireland-based companies didn’t crack open the Champagne on Sunday’s bail-out news, there was a good reason for this: the issue of Ireland’s corporate tax rate is far from dead, at least in certain parts of Europe where taxes are higher.
In the rescue deal first unveiled on Sunday, Ireland agreed that it would raise some taxes, but stopped short of promising to increase its 12.5% corporation tax. Throughout the recent weeks of turmoil, Irish finance minister Brian Lenihan has insisted that maintaining this rate would be key for Ireland’s recovery, just as it was one of the main reasons behind the Celtic Tiger phenomenon that saw Ireland expand exponentially in the 1990s and early 2000s.
“Put simply, the Government has to increase our taxes and reduce our spending to levels we can afford,” Taoiseach Brian Cowen said in a joint press conference with Lenihan on Sunday evening, in announcing the deal.
“In order to help Ireland complete these essential tasks, and to safeguard the stability of the euro area, we will receive funding which we will repay over time.”
However, he insisted that the issue of changing Ireland’s rate of corporation tax did not arise.
‘Unfair advantage’
This is not what politicians in such fellow EU countries, which are contributing to the Irish bailout, want to hear. France and Germany in particular have argued that Ireland’s corporation tax gives it an unfair advantage in attracting investment from abroad.
German officials, for example, consider Ireland’s 12.5% tax rate still very much up for discussion, with German economist Peter Bofinger, one of German chancellor Angela Merkel’s advisers, quoted as saying that “it’s not fair behaviour. States need more income, and now would be a good opportunity to raise taxes.”
“You can’t ask for solidarity on the one hand and on the other side not behave fairly on the [corporate] tax issue,” Bofinger said, according to the Irish Times, which noted that he suggested Ireland was offering “four-star hotel rooms for a two-star rate”.
