Outing Innovation

“There’s no ‘I’ in team”, says the football manager.

“No, but there is 1 in Champion” comes the players retort.

If you were to play out the same verbal spat in the halls of the European Unions Common Consolidated Corporate Tax Base (CCCBT) offices, I’d imagine would go:

“There’s no ‘I’ in Team”

“No, but there’s 2 in Innovation!”

Life (my life) is all about Me. How I got like this (was I always like this?) and what makes Me so selfish is unimportant. It takes a lot of effort to maintain this Shrine to Me by Me. I run and go to the gym to maintain my body. I get grouchy if my sleep is impinged upon, I need it to maintain my (self-declared) fantastic wit. I maintain this blog, that masquerades as thought provoking, but is at its core is just an ode to Me.

I can take some comfort in knowing most of you are like Me. Statistically, I’m in among a majority of Me’s. Most of us are maintainers. We are all working to maintain ourselves, our professions, our way of doing things.

We aren’t all innovators. So, if most of us are in maintenance, then why is the EU’s new CCCBT give a special deal to Innovation?

I don’t know is the real answer, but it’s fun to speculate. Innovation is sexy, no one wants to be the second to do anything, everyone wants to create the newest and bestest most innovationy-ist thingy.

Think about the plethora of charities and foundations that spring up like daffodils. Everyone of them dedicated to a cause that there is already a charity set up for. Everybody wants to be the catalyst for change, they have a dream that their new institution is the one to solve the problem.

Without sounding disrespectful of well-intentioned philanthropic people*, not everyone can be the hammer that cracks the nut. Most of us need to be part of the handle, without which the head cannot swing. We end up with too many charities, competing for too little money and the lack of consolidation leads to less progress in tackling the issue.

Maintenance is less glamorous than innovation. But consolidation and maintenance are critical and more often than not, more important than innovation. It’s not only the charitable sector that suffers from Innovation Addiction. Nope, these days the addicts are running the EU asylum.

Let’s go back to the CCCBT

One of the key proposals of the new Tax Reforms is based on Innovation. What the EU are saying is that start ups (which is good) AND Large Corporations (which is bad) who “support innovation” will be rewarded “through tax incentives for Research and Development (R&D) activities which are linked to real economic activity.” A tax break if you build a (Irish) Knowledge Box, or some other fancy Research and Development container.

These Large Established Corporations are defined as companies who earn more than €750m per year. Not the type of young dynamic company that needs a break. But the start ups are eligible as well, so we should automatically welcome this brave new innovation, right? Wrong…

These tax breaks are misdirected. The established high-tech innovation sector is not a big employer in the EU. In fact, it’s a small player. As Eurostat reported “in 2014, about 34m people were employed in the manufacturing sector across the EU, representing 15.4 % of total employment. Among these workers, 2.3m were employed in high-tech manufacturing, corresponding to 1.1 % of total employment.” That’s employers of only 1.1% of total EU jobs are to receive tax incentives the 98.9% won’t. What’s wrong with this picture?

Ireland doesn’t fare much better. While we lead the EU with 3% of our workforce in the high-tech sector, it’s estimated nearly 50% are not in high-tech jobs, but in administration roles. At most 2% of our workforce are employed in these Innovation, Research and Development roles. 2%, it’s hardly worth giving such huge tax breaks to, is it?

OECD, young firms, job creation

More worrying, the Big MNC’s aren’t really innovating anymore. They don’t need to. They are sitting on huge pots of money. What they do is wait to see which start up (genuine innovator) is doing well, or has promise and they buy them out. Bang, the market shrinks, they consolidate their position and the Innovation becomes theirs, along with the tax break. Doesn’t seem right, does it?

Between 2011 and 2015 the Big Players spent nine times more money in acquiring (buying up) innovation than on innovation itself. Yet we want to give the tax break to the Big Guys, already earning over €750m per year. Am I missing something here?

These Behemoths are not innovators. Some of them are not even big employers. In 2015 Facebook’s global workforce was less than 13,000. Poke that on your wall beside your timeline or something!

It’s the maintenance guys and girls that are the workforce. They’re the ones busy keeping the show on the road. The true innovators (young dynamic firms) aren’t earning €750m per year. The true innovators (job creators) are the head of the hammer, the maintainers swing the handle, but in this new CCCBT deal it’s the Big Guy who takes the nut they crack. I’m not okay with that. Are you?

 

Tony Groves October 2016

Image result for corporation tax cartoon

Warning: I will be writing about this CCCBT again.

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