OECD Warns Ireland That Growth Will Take More Than Just Low Taxes
Ireland has among the lowest taxes in Europe. However, the Organization for Economic Cooperation and Development (OECD) is not impressed. They warned Ireland that it will have to spend more time selling itself in the new era of global tax transparency if it wants to experience meaningful economic growth.
OECD chief economist Catherine Mann has said that moves by the Irish government designed to better align its taxable profits with real economic activity might initially sting. However, these are just the types of changes called for under the OECD’s Base Erosion and Profit Shifting (BEPS) initiative.
The sting would arise from the large number of multinationals based in Ireland for tax planning purposes, she said. Ireland has been at the center of a multinational tax controversy thanks to aggressive tax avoidance strategies used by huge companies like Apple and Google.
While speaking at a conference on tax policy hosted by the Irish Department of Finance, Mann noted that in the future, “Ireland is going to have to seek real investment based on comparative advantages other than tax.”
The G20 leaders plan to unveil a finalized package of proposed measures recommended by the OECD as part of its BEPS project in Turkey this weekend. These measures should improve transparency, close loopholes, and restrict the use of tax havens such as the one Ireland currently promotes.
According to a report by The Irish Times, Irish-owned enterprises lag behind their foreign counterparts in an array of metrics, particularly research and development. In fact, despite hosting some of the world’s leading technology brands, Ireland actually has one of the lowest levels of spending on research and development in the European Union.
“Global capital has come into Ireland – and that’s a good thing – but somehow it hasn’t translated into Irish-owned firms,” Mann said. “The patents are here, but they’re not being linked into the domestic economy, not being levered up by domestic firms or married to domestic workers.”
To reverse this trend and compete without the tax havens, Ireland will have to adjust its tax system to encourage productivity while deepening relationships between the development of intellectual property and the domestic economy. Mann noted that a currently pending proposal for a patent box could play a significant role in these reforms.
Deepening the problem for Ireland, the OECD’s latest productivity report noted that a major skills mismatch exists in the country, with high numbers of workers overqualified for their current jobs. Mann attributed this phenomenon to the lingering results of the global economic downturn of 2008, but acknowledges that this will make the tax revisions all the more difficult to tolerate in the short term. Nevertheless, she maintained that adoption of BEPS would be in Ireland’s long-term interests.
