This time on N Ireland\’s mooted 12.5% corporation tax rate.
The ERGNI argument is debunked in this
report by Richard Murphy of Tax Research UK, one of the most important
thinkers on this subject.
Erm, yes, well…..
This from Richard himself is fun:
First amongst these are
the enormous obstacles that would be placed in the way of trade between
the UK and Northern Ireland because much of it would then be subject to
cumbersome and costly transfer pricing rules to prevent tax leakage from the
rest of the UK.
Richard is, as you know, the man who is insisting that all companies everywhere should be subject to these \”cumbersome and costly\” rules under his country by country reporting proposal.
Pages 9 and 10 give us a quite glorious argument. Foreign Direct Investment has been falling off in Eire, this is true (although it would be very interesting to know what the \”others\” bit is and Ritchie\’s link is to a slide show, not highly informative) and portfolio investment increasing. That portfolio investment doesn\’t bring all that much in the way of jobs with it.
By the end of page 10 this has morphed into:
But the reality is that in that case nor will Northern Ireland attract
the foreign direct investment it dreams of, or the new jobs for anyone but
lawyers and accountants that go with it, by offering a low tax rate.
D\’ye see what he\’s done? Yes, good. That Eire, a significantly richer place than NI, has seen a fall in FDI means that, in Ritchie world, lowering the tax rate in NI will not engender any FDI.
That doesn\’t in fact follow: if it did we would be wondering why Taiwan\’s getting less FDI while China\’s grows, wouldn\’t we?
It will be noted that in five quarters in 2009/10 Ireland had inward investment
of $31.1bn. Outward investment in that period was $31.0bn. In other words,
Ireland is not the location in which foreign direct investment is taking place.
No it doesn\’t!
It could mean that, for sure, but it could also mean that foreigners are investing in Eire and that the peeps of Eire were investing their own money outside Eire, meaning a rough net balance.
And, given the colonisation of various Mediterranean and E European reports by the Irish spending the property boom, there\’s certainly some of that having gone on.
Murphy\’s made entirely the opposite mistake he made in the Green New Deal. There he said that UK capital flowed abroad: true, but the net effect was foreign capital flowing into the UK. Must be, as the UK runs a trade deficit. Here he taking the net balance as proof that there\’s no FDI when it\’s entirely possible that there is.
The conclusion of his charging through the byways of tax legislation is that:
This section has explored issues that give the Republic a competitive
advantage with regard to tax that they exploit to bring business to their
country which it is highly unlikely that Northern Ireland could replicate.
Yup, a low tax rate in NI wouldn\’t work because all of the other tax laws are so restrictive. To which an obvious answer is, well, relax those as well.
He also makes some (quite possibly sensible) points about how having a different tax jurisdiction within the UK would lead to problems. To which, of course, the answer is, well, let\’s just cut the UK\’s corporation tax rate to 12.5%.
After all, we know that it\’s mainly a tax upon the wages of the workers anyway.