Ireland would lose up to 50 per cent of its corporation tax base, equivalent to €4 billion in revenue, if EU plans for a consolidated tax base across the bloc come to fruition, Ibec has warned.
In a submission to a review of Ireland's corporation tax regime, the employers' group calculated that Ireland would be worst hit of all 28 EU states from the proposed Common Consolidated Corporate Tax Base (CCCTB).
This is because the formula it uses for determining the taxable profits of companies favours larger consumer-driven economies such as France over smaller exporting ones like Ireland.
"Ireland would lose over 50 per cent of its taxable profits under this formula, with larger low-exporting countries such as France gaining over 73 per cent to its corporate tax base," Ibec's chief economist Gerard Brady said.
In revenue terms, he said the CCCTB plan would result in a net loss for Ireland of about €3.9 billion a year, equivalent to 7.7 per cent of the State's total tax base.
Administration
Mr Brady also noted that the positive side of the plan from Ireland’s perspective, namely the streamlining of administration, was already happening under the OECD’s base erosion and profit-shifting (Beps) project.
However, in its report Ibec rates the overall CCCTB risk to Ireland as low given the level of opposition to it across Europe. It said a far bigger risk to Ireland’s corporation tax base might come from tax reform in the US.
The reform currently supported by several influential Republicans envisages a deep corporate tax rate cut, a rate holiday for repatriated offshore earnings, and the introduction of a border adjustment tax.
Ibec said the border tax element posed the biggest risk of the three. “The scheme would be equivalent to imposing tariffs, equal to the corporation tax rate, on imports while subsidising exports,” Mr Brady said, a move that could seriously damage Irish pharmaceutical and medtech exports to the US.
The employers’ group also used its submission to highlight the current volatility in the State’s corporation tax take, with reports that just 10 firms paid 50 per cent of Ireland’s total corporate tax take last year.
The “extreme concentration” of corporate taxation in a small number of mainly multinational, firms’ means that policy issues affecting them can have serious fiscal consequences for Ireland.
Fluctuations
As a result Ibec warned against building recent gains into current spending, a point that was also made by the Fiscal Advisory Council.
“There are no guarantees in this, and building those gains into the base of current government spending will leave the State open to fluctuations in the tax base in the future.”
Mr Brady suggested that any money above a three-year rolling average should be put into once-off investments in infrastructure or higher education.
Ibec's report noted that, despite dire predictions, Ireland had benefitted from Beps, with an increasing number of firms relocating IP assets here. However, it said the net result of the process, along with growing mobility of skilled labour, had brought increased focus from corporates on other elements of our FDI offering.
“Ireland’s broader economic and social environment is crucial to attracting FDI, with companies identifying the availability of skilled employees, the standard of living, and certainty from government as central to their decisions to locate here.
“Other comparative advantages include our EU membership, common law system, industrial relations environment and English-speaking population. It is imperative that these elements of our FDI offering are retained.”
