Tax Law

Will Indebted Ireland Be Forced to Raise its Corporate Tax Rate?

With newly released estimates of the bailout of Anglo Irish Bank the Irish government is staring down the barrel of a budget deficit equal to a whopping 32 percent of GDP. Ireland does not want a Greek-style foreign bailout and it does not want to default or restructure its own sovereign debt or the debt of its failed banks. So the Irish government is pushing to be the most austere of austere European governments. It has announced its intention to shrink its deficit to 3 percent of GDP by 2014.

In this fiscal and political maelstrom is it possible for Ireland's 12.5 percent corporate tax rate to survive? . . .
 

This is absolutely the correct approach. It would be foolish for Ireland to raise its corporate rate. The low rate provides an annual transfer worth billions from the U.S. Treasury to the Irish government. . . .


But that's not the end of the story. Logic could fall be the wayside as political pressures mount. . . . It is universally agreed that the government headed by Prime Minister Brian Cowan and his Finance Minister Brian Lenihan will be lucky to survive through 2011 and will certainly be out of office by 2012. . . . Calls for large profitable foreign corporations to share the burden will undoubtedly get a more sympathetic ear as time goes by.

Even greater will be the external pressure. Large EU countries like Germany and France are sick and tired of Ireland's low corporate rate attracting business to its shores at their expense. Ireland has been able to forestall pressure from the European giants by threatening EU unity. . . .


The bottom line: If Ireland can stabilize itself without external aid, the 12.5 percent rate will almost certainly survive. But if matters start spinning out of control—a very real possibility—and Ireland must borrow from the rest of Europe, all bets are off.

View TaxAnalysts' Marty Sullivan's opinion in its entirety on TAX.com

Discover the features and benefits of LexisNexis® Tax Center

 

For quality Tax & Accounting research resources, visit the LexisNexis® Store