G7 Tax Deal and Irish Capitalism
Irish Workers Bound to Pay
21 June 2021
Britain's Chancellor of the Exchequer
Rishi Sunak speaks at a meeting of
finance ministers from across the G7 nations.
The recent advances in setting a global minimum rate of corporation tax is being presented by the G7 as a progressive development that will benefit the broad masses. This is the exact opposite of what it is. Rather than being an expression of some new found economic liberalism that will lead to “fairness for the middle class and working people”, as claimed by Janet Yellen, it is designed to strengthen the core imperialist economies and to protect huge corporate profits from a global taxation free-for-all. It is also an attempt to both cover up and to consolidate the recent huge transfer of wealth from poor to rich, the largest in at least a century. Incidentally, while talk of 'fairness' was pouring from every major media outlet the intellectual property rights of unimaginably rich pharmaceutical corporations remained untouched as the world's poor continue to suffer catastrophic casualty numbers from Covid 19.
The tax deal, being pushed
by the US Democrats, is primarily an attempt to pressurise US corporations
to repatriate earnings. Janet Yellen argues that the proposal seeks
to “raise the global minimum tax and to close tax loopholes that
allow American corporations to shift earnings abroad”. Trump's half-hearted
electoral promises to repatriate heavy industry to the US was accompanied
by efforts in the same direction with corporate profits. This ultimately
ended in the issuance of threats of tariffs on European imperialist countries,
namely France, Italy and Britain, who were pursuing a 'digital services
tax' policy on Google, Amazon, Apple and Facebook. The global giants
had no physical presence in these countries yet they made enormous profits
from operations.
Before 2017 US companies
had been taxed on the earnings they made overseas but not until those earnings
came back to the US in the form of dividends. Trump considered exempting
foreign earnings from tax, in order to attract it home, but reconsidered
after it was pointed out that this would encourage corporations to shift
even more of their profits abroad. To prevent this, he introduced
the GILTI, (Global Intangible Low-Taxed Income) rate, which reduced corporate
tax liabilities from 35% to 21%, in order to attract company profits back
to the US.
Biden's attempts to attract liberal, or self-identified left, support during election year produced promises of a hike in that rate to 28% but this has now, unsurprisingly, disappeared. With the global rate now being planned to be set at 15% the proposed corporate tax hike in the US is going the opposite direction. Biden's approach follows the same logic as Trump's, though without the aggressive rhetoric and threats of tarrifs. Like Trump's policy it represents a tendency towards the shrinkage of globalisation behind national boundaries as the US seeks to repatriate profits while other imperialist nation states were prepared to enter into a tax-war to grab their share.
The new policy attempts to weed out low-tax shelters like Ireland leaving corporations less choice in avoiding taxation in the imperialist states. At the same time it offers the incentive to corporations of lowering the tax burden imposed by those states which had already employed a 'digital services tax' due to the lack of a global deal that allowed them their 'cut'. Corporations are already set to save hundreds of millions of Dollars in comparison to what they were paying under various 'digital services tax' schemes and have reacted warmly to the G7 agreement while the finance ministers of imperialist states welcomed the stability if offers.
The next stage for the reform is that the same recommendations will go first to the G20, held in Venice in July, and then finally back to the 139 countries of the OECD to decide and refine the proposals. There is some way to go but given that the G7 finance ministers have signalled their “strong support” for the deal and global corporations are more than happy, it is looking likely that the plan will be approved in some form. Biden's plan then is to push the necessary legislation through Capitol hill with some Republican support before the mid-term elections.
The deal and Irish capitalism
Amid the cacophony of enthusiastic support, the figure of the Irish finance minister, Paschal Donahue, cut a forlorn figure standing in opposition. The details of the proposed measures reveal why.
The proposed deal has two supporting 'pillars’; The first is a restructuring of tax rules that would mean that countries where goods are sold can raise tax on 20% of any profits that are above a minimum of 10%, which at present would leave many corporations escaping the tax as their profits are under 10%. In spite of the severe limitations on corporate tax liabilities imposed by the 10% minimum, this means that they will pay tax largely where they make their profits rather than in countries such as Ireland, which houses a high proportion of corporate headquarters.
Of course, finding tax loopholes is a corporate speciality but choices are limited for those thinking of non-compliance. To provide an 'incentive' to comply with the new rate the proposals also have a backstop in place that would mean US corporations that continue to benefit from a rate below the agreed minimum would face a top-up tax at home and in some cases the removal of tax credits in order to discourage them.
With the British talking of the new proposals providing a “level playing field” and a series of European finance ministers waxing lyrical on the 'historic' nature of the deal it is plain that the big European exchequers are happy to regulate relations with the US, rather than conduct a tax war, and to gain 'their own' taxable share of the huge global corporate profits.
They are every bit as keen to defend that share by ending tax avoidance schemes similar to the “double Irish”, which was the kind of financial mechanism that allowed sales of services throughout Europe while the Irish government collected a much-reduced tax yield.
The second 'pillar' of the deal, the minimum rate of 15% corporation tax, although still much lower than most countries rates and not much higher than Dublin's, has nevertheless got devastating implications for Irish capitalist strategy in that it severely limits Ireland's ability in the future to use reduced taxation levels to attract foreign direct investment (FDI).
The lowering of the corporate tax rate has been a main pillar of Dublin's economic perspective and has defined the south's economic relationship with imperialism for decades, producing the high-profile results that were used to argue that Irish capitalism was a global success. Now with the Irish economy estimated to lose around €2.2bn, 20% of the corporate tax take, Paschal Donahue has voiced his concerns about the plan, citing this decreased ability to attract FDI.
Defiance of imperialist plans by the Irish state will not happen and part of the new deal's objective is to rule out the utilisation of loopholes. Although creative accounting in relation to tax has always been a feature of Irish capitalism's strategy the doors are closing on that option fast.
The fundamentals of the southern state's economic strategy are looking likely to take a serious hit and the days of GDP figures that needed a special method of measurement to make them credible, and to some useful extent reflective of the real economy, are coming to an end.
Ominous language
The comparison being bandied around that the loss to the exchequer is equal to “two thirds of the 2021 housing budget” is ominous. We already know that the Irish ruling class has thrown open the door to vulture funds, to pick over the carcasses left by the banking collapse and, according to their own logic, to 'resolve' the housing issue. What punitive scheme will they dream up next to make the working class pay?
Increased governmental measures taken against the mass of wage earners in the form of taxation, has already been hinted at and the government will now argue that the corporations are 'doing their bit', and that the working class must up their contributions.
For the mass of working people this undoubtedly means suffering lower wages and increased taxes, cuts in health provision and increased privatisation of services in order to fund further concessions to corporations thinking of locating here. This will require a campaign of defence from the working class who will suffer the consequences of the crisis while the trade union leadership squeeze up a little tighter inside their infamous shrinking 'fiscal space' and solemnly nod in concert with the state's economic policy.
Once again questions of working-class self-organisation and leadership are magnified by the increasing intensity of the world capitalist crisis. A systemic long term global profitability decline is combining with conjunctural elements in the form of Brexit, imperialist regulation of corporate tax, and an increasingly widening housing crisis to intensify the contradictions for Irish capitalism.
The working class are being made to pay for all these crises and the bill keeps getting bigger. A spontaneous fight back is burgeoning, all the traditional conservative brakes on the development of that fightback must be identified and opposed and a new revolutionary resistance will emerge in struggle. As the crisis deepens standing still is not an option. Onwards to mass resistance!