Facebook’s rethink on tax should not be a cause for panic here
THERE’S no need to panic yet about Facebook’s decision to book profits locally on international European sales, instead of channelling it all through Ireland. The concern from an Irish exchequer point of view might be that the move signals change is in the wind.
The good news on a social level is that the move shows the intent by this digital giant to pay more tax somewhere.
It won’t tumble Ireland’s foreign direct investment edifice just yet. Here is why.
The European Union has been moving towards grabbing more tax at point of transaction from tech giants. It has been considering some kind of 6pc turnover tax levied in the country where the product is sold.
Last year, Facebook moved around €12.2bn through Ireland. Such a turnover levy or tax, in theory, could see the tech giant pay around €730m on that €12.2bn.
Facebook has instead decided to move ahead of the game and announce that it will book revenues in local markets. It will then end up paying corporation tax on the profits it books in each of those countries. The level of profit will be determined by what expenses or offsets it uses against its income in each country.
This way, it could end up paying more money than it has up to now, but a lot less than €730m on those European transactions.
It is an early concession by Facebook, but quite a clever one. In the global game of tax chess that it going on right now, it has moved first in the direction things are going anyway, but perhaps it has not moved as far as some European governments would like.
This way it has grabbed positive headlines and stolen a march on plans for a turnover tax.
Ireland has little to lose from the Facebook decision alone. Facebook employs around 2,000 people in Ireland and they pay lots of income tax and there are obvious significant benefits to the economy flowing from that.
It only paid corporation tax of €29.5m on that €12.6bn of revenues in Ireland anyway. There will be no great hit to the Exchequer from this.
Even if other tech companies follow suit, the direct hit to Irish Corporation Tax is likely to be modest enough. We already allow them to write off 80pc of the cost of developing or acquiring their intellectual property against their tax bill anyway.
Since 2015 it has been 100pc, which saw €300bn of IP move to Irish resident companies that year. They made trading profits on that IP of €26bn in 2015, but it was all written off against their costs.
The proposals that were being floated across Europe for a digital turnover tax, only applied to tech giants anyway. This move by Facebook, even if it is followed, does not necessarily have direct implications for pharma, financial services or other sectors.
The wider investment case for new foreign direct investment projects could be hit by the new Corporation Tax plans being hatched in Washington. But we shouldn’t panic just yet.
And we have to bear in mind, that overall this is a positive outcome in so far as it is likely to see more tech giants pay more corporation tax in different countries. Surely, that is in everybody’s interest.
Star Wars: The Last Euro
NO sooner had the first viewings of the new
Star Wars films hit the big screen during the week, than you could almost hear the sound of tourist dollars heading Ireland’s way.
The Financial Times published a travel article on Thursday under the headline: ‘Star Wars: The Last Jedi. From Dubrovnik to Donegal, where to find the dramatic landscapes from latest chapter of the space saga’.
Ireland was all over this article, with five of the six photographs used to illustrate it coming from here. The sixth was from Bolivia.
The article is just the beginning of what should become a steady flow of visitors who want to swing a light sabre where Mark Hamill stood. I’m flying the flag for Malin Head — truly worth a visit.
It came in a week when Tourism Ireland published an incredibly positive review of the first nine months of 2017. By the end of this year the island of Ireland will have seen 10.6m visitors spending about €5.8bn.
There were only a couple of small flies in the ointment with news that British visitor numbers continued to fall with a 6pc decline. Tourism Ireland has very successfully offset this decline with a bigger push into the American market.
Americans stay here longer and spend more money. But can the American success story and momentum be maintained? Trump’s tax reforms expected to take effect next year should see more money flowing into the wallets of already affluent Americans, through lower taxes, and higher dividends arising from lower corporate taxes. That should be good for visitor numbers.
But Trump may be stirring up much bigger trouble for a little down the road with asset price bubbles, higher government deficits and rising interest rates.
Meanwhile, those hard-pressed British visitors will have to count the cost of visiting Ireland with a weaker sterling. They may choke into their chowder at Irish hostelries when they see the price. And of course there is the continued price gouging in the hotel market, especially in Dublin.
Tourism Ireland has done its jobs well by delivering the numbers but there is every chance elements within the industry might just blow it themselves. And of course, wait until the hordes of Star Wars visitors realise how few of them per day can actually visit the protected World Heritage Site that is Skellig Michael? Selfies with a speck of a rock off in the distance might be as far as they get. Just don’t tell them until they arrive!
Smart money going on soft Brexit
BUSINESSPEOPLE take risks all the time. But who would want to bet the future of their business on there being a soft Brexit by not preparing? It is a tough call. As the exit talks between the EU and the UK move on to Phase II, a soft Brexit is looking ever-more likely. It appears almost inevitable at this stage. It was implied in the wording of the agreement reached with Ireland over the Border last week.
Theresa May’s government had a crushing defeat in the House of Commons on Wednesday night which almost guarantees a soft Brexit. Any final deal will have to be voted on by both houses of the British parliament.
This will hang over the negotiating team during the talks. It will force the UK to reach a deal sooner, possibly by October 2018. This week there will be a move to get rid of the proposed exit deadline of March 2019. All of these factors point to a very soft Brexit from an Irish point of view.
News that just a few thousand financial services jobs are on track to leave the City of London, instead of the tens of thousands initially feared, also suggests that London banks are betting on a soft Brexit.
For Irish companies up and down the country, this is comforting news. But can they be sure? Many of them face having to make important decisions about acquisitions, restructuring and cracking new markets because of Brexit.
They will also have the cushion of a twoyear transition period after the seeing the shape of any final deal. Recent surveys of Irish business have shown that lots of firms are not preparing for Brexit at all. That number is likely to increase.
But British politics is unpredictable and uncertain. Could you bank on it?