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Multinationals Fear Irish CIT Hike

by Jason Gorringe,, London

18 November 2010

A new survey of Irish multinationals by the Irish Management Institute (IMI) and the National Irish Bank, has urged continued government support for the maintenance of Ireland’s 12.5% corporate tax rate as a means of facilitating an expected revival in the Irish economy.

The survey shows that almost half of multinationals in Ireland are expecting to grow exports in the next 12 months, in addition to growth already witnessed in 2010. However respondents also stressed the importance of maintaining the current corporate tax rate in order to speed economic recovery and attract new jobs to Ireland.

"While the survey last year indicated the extent to which companies were cutting staff in the face of falling order books, this year over half of respondents don’t foresee any change in the size of their workforce over the coming year. In fact, more of them see their employee numbers increasing than decreasing," Dr Tom McCarthy, the IMI’s Chief Executive said.

Urging support for multinationals and not tax hikes, the report acknowledges a prevailing view among respondents that the costs of maintaining Irish operations are significantly higher than in comparable locations, labour being the most expensive area highlighted. It was noted however by respondents that “due to the low corporate tax base in Ireland, the country provides a very competitive base for the operation of head offices.”

Urging the government to continue to stand firm on its corporation tax rate, the report in particular notes that the country’s benign regime has been instrumental in transforming Ireland “from a low-/middle-skilled country in the 1990s to a high skilled location.”

The report’s authors urge that “maintaining an export sector that is far out-performing any other country [has been paramount to Ireland’s success] over the past two years,” and that if the government can continue to provide support to multinationals “exports will provide an engine for the economy over the next two to three years.”

The survey comes as specialists from the European Commission, the International Monetary Fund, and the European Central Bank are being drafted in to craft a bailout package for Ireland in the event that it should need external financing.

It is expected that European Union members will be required to stump up as much as EUR100bn in support of Ireland should the country need it, as the cost of financing its debt has spiralled. While Irish debt is financed to mid-2011, Irish bond yields have drifted significantly from the Eurozone benchmark on market fears that the country faces default.

Recent comments from the EU Commissioner responsible for economic and monetary affairs, Olli Rehn, that Ireland will need to adopt "normal tax" policies is further evidence that as far as the EU is concerned, the days of low corporate tax in Ireland are numbered.

TAGS: tax | investment | business | European Commission | Ireland | fiscal policy | international financial centres (IFC) | corporation tax | offshore | multinationals | tax rates | European Union (EU) | business investment | Europe

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