IMF blog post on corporation tax poses challenge for Ireland
A new IMF blog post, arguing that low corporation tax rates harm poor countries, will make uncomfortable reading for the Government, as it battles to maintain Ireland’s decades-old business model.
The post, ‘How low can you go,’ doesn’t name individual countries, but draws on recent analysis by the IMF to argue that “a new approach” to reforming global corporation tax is “urgently” needed, after taxes levied on companies around the world have fallen to record lows. It goes on to suggest that large multinationals are failing to pay their fair shares of taxes.
In what it says is a “race to the bottom”, corporation taxes in all types of countries — whether rich, middle-income, or poor — have fallen to record lows in the past three decades, according to the blog.
“In life, two things are certain: Death and taxes, the saying goes. Unless you are a large multinational corporation, in which case, maybe not,” says the IMF post.
The IMF says its blog posts are a forum for its staff and officials to air “pressing economic and policy issues of the day”.
It comes as the Irish Government successfully navigated the first wave of reform to the global taxation system, under the Organisation for Economic Co-operation and Development.
Many analysts say that, apparently paradoxically, Ireland has so far benefited from the shake-up in global taxation, through a process called Beps, or ‘base erosion and profit shifting,’ as multinationals regularised some questionably aggressive tax arrangements and put highly valuable intellectual property through the accounts of Irish-based companies.
That, in turn, boosted the gross taxable base here, delivering billions in unexpected corporation tax revenues, which the Government used to finance huge day-to-day spending overruns, particularly in healthcare in recent years.
Finance Minister, Paschal Donohoe, has said that the second stage of Beps will likely be much more challenging. “First, the ease with which multinationals seem able to avoid tax, combined with the three-decade-long decline in corporate tax rates, undermines both tax revenue and faith in the fairness of the overall tax system,” says the IMF blog.
“Second, the current situation is especially harmful to low-income countries, depriving them of much-needed revenue to help them achieve higher economic growth, reduce poverty, and meet the 2030 Sustainable Development Goals.
And it adds: “Advanced economies have long-shaped international corporate tax rules, without considering how they would affect low-income countries.”
