EU plans for a common corporation tax regime across the bloc poses an "imminent threat" to the Republic's economic model, economist and chairman of the Irish Fiscal Advisory Council Seamus Coffey has warned.
Germany and France are backing European Commission proposals to harmonise corporate tax rates across the euro zone in a bid to raise transparency and level the playing field for companies doing business in Europe.
The move would see large firms pay corporation tax proportionate to where their sales, staff and headquarters are located rather than the current value-added approach.
This could see the Irish exchequer lose up to €4 billion or 50 per cent of its current corporation tax base while significantly reducing the appeal of the State’s 12.5 per cent headline rate.
"When compared to other EU countries, the contributions of US companies to the Irish economy are double, sometimes triple, that of other nations," Mr Coffey told an event hosted by the Association of Chartered Certified Accountants in Cork.
“On average other EU countries receive between 2 per cent to 4 per cent of national income from American multinationals: this compares directly to the Irish economy which owes over 10 per cent of its national income to the presence of American foreign direct investment [FDI].”
“This includes employment and income contributions as well as tax, investment and infrastructural spending,” he said.
"While there are many reasons for US companies to invest in Ireland, including shared language and a highly-skilled workforce, the introduction of a CCCTB [common consolidated corporate tax base] and a change in the tax environment would see a direct impact on Ireland's corporation tax revenues and a possible negative impact upon FDI across the country," Mr Coffey said.
Multinationals
While acknowledging the risks of relying on multinational companies, particularly in the context of the current tax environment, Mr Coffey said criticism of US FDI in the Irish economy overlooked the fact that investments have had a “remarkably positive impact” on the professional environment of Ireland.
“Yes, there are risks with the Irish model, but the risk only exists because of how successful it has been. If multinationals didn’t play such an important role in Ireland it wouldn’t be a risk to lose them – they are key to driving growth and it is obviously in our interest to support their presence here, just as we would with any other integral part of the economy.”
The European Commission’s first proposed a voluntary common consolidated corporate tax base back in 2011, but it ran into opposition back then from the Republic and the UK, who saw it as a forerunner to a common corporate tax rate.
However, the plan has been revived on foot of the outcry over corporate tax avoidance, particularly by big tech multinationals, many of which are based in the Republic.
