More countries are likely to follow the Republic’s example and set very low corporate tax rates as a result of the Organisation for Economic Co-operation and Development’s (OECD) deal, US economist Joseph Stiglitz has claimed.
“What began as an initiative to make multinationals pay their fair share will have just the opposite effect,” he warned an event hosted by Independent Commission for the Reform of International Corporate Taxation.
“If you announce a global minimum 15 per cent, I’m afraid that will become the maximum. People will say if we charge more than that, we won’t get the business,” he said.
“So the de facto rate will be something more akin to what Ireland charges,” the Nobel-prize winning economist said.
As it stands, the OECD deal would mean that Ireland must forgo its prized 12.5 per cent rate and charge big multinationals a new minimum rate of 15 per cent.
This was only a small change, Prof Stiglitz said, and a long way from getting multinationals to pay their fair share. Developing countries had pushed for tighter controls and a higher minimum rate.
On whether he thought the State would lose future investment because of the deal or whether it would stop companies using Ireland as a conduit for tax avoidance of the type revealed in the recent Pandora Papers, Prof Stiglitz said: “A lot of the tax avoidance does not give rise to real economic activity – it’s only where the income is booked.
“So when all Europe’s income from Apple was booked to Ireland, it created maybe 300 jobs and gave a minuscule amount of extra revenue to Ireland at the cost of enormous amounts of money from the rest of Europe. It’s a non-zero sum game in which Ireland gains a little and the rest of Europe loses.”
While acknowledging there would be consequences for the Republic as a result of the OECD deal, he said the worries are “greatly exaggerated”.
The former chief economist of the World Bank said Ireland had a strong record in attracting foreign investment, had a highly educated labour force and – unlike the UK – remained part of the EU.
The real beneficiaries of tax competition are corporations not countries, he said.
“It is better for Ireland and the world if we compete on the basis of a race to the top, the quality of labour force, the quality of the rule of law, the quality of the infrastructure, more tax revenue, better investment [and] the health of the people,” he said.
“Those will the basis of the long-run prosperity of Ireland. I have every confidence that Ireland will actually do better in this world where the model of growth is not based on taking advantage of your neighbours,” Prof Stiglitz said.
An updated draft text this week of the OECD deal dropped “at least” from the reference to a proposed minimum global corporate tax rate of 15 per cent, clearing a major hurdle for Dublin to sign up.
Martín Guzmán, Argentina’s minister of economy, told the event the deal was a choice between something bad and something worse.
“Worse is to get nothing and bad is what we’re getting,” he said, noting G7 nations were set to gain 60 per cent of extra revenue generated by the agreement.
He described it as a missed opportunity “to correct one of the most toxic aspects of globalisation – tax avoidance.”