7136-2-AQA ECONOMICS-A-QUESTION PAPER 22May23-A-level ECONOMICS Paper 2 National and International Economy

A-level ECONOMICS Paper 2 National and International Economy Section A Answer EITHER Context 1 OR Context 2. EITHER Context 1 Total for this context: 40 marks Corporation tax in Ireland Study Extracts A, B and C and then answer all parts of Context 1 which follow. Extract A Figure 1: Corporation tax rates (%) in selected European nations, 2021 Figure 2: Macroeconomic performance indicators for selected European nations, 2021 France Ireland Spain GDP at current prices ($bn) Exports ($bn) Inflation (%) 1.6 2.4 3.1 Unemployment (thousands) Labour force (millions) 31.0 2.5 23.3 Note: Main tax rates only. Some figures rounded. Source: Official statistics, 2022 Extract B: Irish corporation tax Ireland has dropped its low-tax policy of the past 18 years, which had helped to persuade some of the world’s biggest companies, including Google and Facebook, to site their European headquarters in Ireland. Countries who are members of the Organisation for Economic Co-operation and Development (OECD), have agreed to a minimum corporation tax rate of 15%. Initially, Ireland was one of nine countries that refused to join the scheme but they have now all agreed to do so. 5 The deal brings an end to the country’s 12.5% corporation tax rate that has applied since January 2003, which has been criticised in other EU countries and the UK, where higher corporation tax rates have applied. The new tax, which will be limited to firms with annual global revenues of over €750m, will come into force in 2023. According to some estimates, it will cost the Irish government between €800m and €2bn a year in lost tax revenue. Multinational corporations (MNCs) located in Ireland and elsewhere, employing up to 500 000 staff, could be affected. 10 Over the years, as a consequence of its low corporate tax policy, Ireland has attracted an estimated 1000 MNCs in the technology, finance and pharmaceutical sectors, including Pfizer, Intel, Yahoo, LinkedIn, TikTok, Apple, IBM and Twitter. Such is the importance of MNCs to the Irish economy, that figures released in May showed that just 100 companies accounted for almost 80% of government tax revenue. The figures exclude those sectors closed due to the lockdown, including hospitality and travel, but showed Ireland’s reliance on MNCs for employment and tax revenue. In 2020, about 32% of all jobs in Ireland were in MNCs and those employees contributed 49% of all taxes on income. 15 20 Source: News reports, 2021 3 IB/G/Jun23/7136/2 Turn over ► Extract C: Extra tax revenue? According to figures published by the EU Tax Observatory, an independent research group, Ireland could collect an extra €12.4bn in corporation tax under the 15% global minimum corporation tax rate. The group stated that Ireland should not be that concerned about MNCs leaving the country. The biggest blow to Ireland’s low-tax regime came in 2015 when, under pressure from the EU, tax avoidance schemes known as the “double Irish” were made illegal. Under this scheme multinationals paid as little as 1% tax on their profits, a fraction of the 12.5% headline corporation tax rate. 5 The argument that the Irish Government would raise more tax revenue is simple: if all OECD members have a common minimum corporation tax rate, then global MNCs would not move to where taxation is lowest, and would just pay more tax in the countries in which they are located. The report finds developing and low-income countries will benefit less than more-economically-developed countries as most MNCs operate in high-income countries. High economic growth rates allowed Ireland to run a budget surplus in 2018 and 2019. However, Ireland is now running a large budget deficit, made worse by the pandemic, and any additional government revenue would be welcomed. Ireland also has an ageing population and could use the money to pay for pensions, social care and improved welfare.