Company taxation levels have become a major battlefront in the global war for business investment.
Donald Trump wants to slash the US corporate tax rate from its current rate of 35% to 15%, arguing it would bring the country “to a level where China and other countries are”.
“And we will be able to compete with anybody,” the US President said last month when announcing his target rate. “Nobody will be able to touch us. So we would like to see 15%.”
Australia, too, has embarked on a gradual reduction in company taxes, with the Coalition government aiming to reduce the tax rate for all companies from 30% to 25% over a decade. This plan is only partially approved by the parliament and the government argues it is putting Australian companies at a competitive disadvantage.
The UK is also reducing its corporate tax rate: it’s currently at 19%, and due to hit 17% by 2020. Singapore has reduced its headline company tax rate from over 25% in 2001 to 17% now.
Ireland, with its rate of 12.5% which was maintained even through its brutal recession after the global financial crisis, is often cited as a nation that has managed to attract vast amounts of investment dollars thanks to low company taxes.
However, the chief executive of Industrial Development Authority — the Irish government agency tasked with attracting companies and helping them get established in the country — says tax is a secondary consideration for companies.
Martin Shanahan, who is currently in Australia as part of an Irish trade mission, argues there are many more important factors companies take into account when deciding on where invest: in particular, ease of establishment and access to talent.
Shanahan is the guest on this week’s episode of Business Insider’s economics podcast Devils and Details, and on the show he unleashes quite a spray on the argument that billion-dollar investment decisions are driven mainly by taxation rates.
Here’s a sample:
I am in board rooms every day of the week, across the globe, and the first thing any company needs to know is that it can operate in whatever jurisdiction it’s going to: that it can set up, [and] set up quickly, and that it can scale up quickly, and that it can find the talent that it needs in order to do that, and to be successful operationally.
And then other things come into the frame, including obviously the level of taxation. But the notion that everything is driven by tax is completely wrong. I mean, it’s a fallacy. It’s easy for some people to think that is the case, because otherwise how do you explain that maybe some smaller countries such as Ireland can do well? But we do well because we have really high productivity, because we have the availability of talent, and we have structured ourselves to have pro-enterprise policies, and provided stability. That’s why we win investments. And yes, tax is a part of that, but it’s just one element of it. If tax was the only driver, [investments] would go to the lowest-tax jurisdiction. Ireland isn’t the lowest-tax jurisdiction. If that’s what was driving you, Ireland wouldn’t have won the amount of investment it has. You strike a balance across all of these different criteria that multinationals are looking for, and in terms of corporate tax we’ve struck the balance at 12.5%. We believe that that is a sustainable level…
We see lots of other countries who are in the process of considering or actually lowering their corporate tax rate. I think that is for those countries to decide. It is a judgement call for every country to decide what is sustainable.
In the conversation Shanahan also explains what it was like during the Irish recession, and outlines how the country has achieved its remarkable turnaround in recent years, attracting billions of dollars in foreign investment and attaining one of the fastest GDP growth rates in the developed world.
You can find the show on iTunes or through a search for “Devils and Details” on your preferred podcasting platform. You can also can listen in below.
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