Changes in global corporation tax are on the way and this will bring challenges for Ireland, according to Minister for Finance Paschal Donohoe.
Ireland must be open to new approaches which recognise that value can be created by digital activities, he said, meaning big companies would pay some tax in markets where they have most of their consumers, potentially cutting the tax take here.
In a major speech on Ireland’s approach to the corporate tax reform programme being led by the OECD, the Paris-based think tank, the Minister also expressed serious reservations over separate proposals supported by some countries to introduce a minimum effective corporate tax rate as part of the anti-evasion section of the talks.
Speaking at that Irish Tax Institute/Harvard Kennedy Centre tax conference in Dublin, Mr Donohoe said “a minimum effective tax proposal had not previously been part of the discussions at the OECD on addressing the tax challenges of digitalisation and I remain to be convinced of the validity and appropriateness of this proposal”.
While he said that Ireland supports measures to limits the capacity of companies to engage in aggressive tax planning, he doesn’t support measures which “have as their core objective the end of legitimate and fair tax competition”. This underlines the Government’s desire to continue to attract investment by offering a low 12.5 per cent corporate tax rate.
The OECD is leading a bid to agree major reform of the global corporate tax system by late next year in the second phase of its BEPS ( base erosion and profit shifting) process. In what is seen as the first move to outline Ireland’s approach, the Minister said that a deal, offering certainty on the future, was very much in Ireland’s interest.
Big multinationals
He accepted that big multinationals may, in future, pay some tax in markets where they serve large numbers of customers on digital platforms, in some cases meaning they would pay less here.
However, he underlined that tax should still be based on where companies credit value and that changes from the current system must be “modest and appropriately targeted” and continue to ensure that most tax is paid in exporting countries as opposed to big markets.
Ireland led the opposition at EU level to a special digital sales tax, in the hope that whatever proposals come from the OECD process will be less damaging and have wider international support.
Ireland has gained from the first phase of the BEPS process as companies have located more profits and activity here and so pay more tax, though how the balance would play out in future remains unclear.
Agreement on a global reform programme was better than countries acting unilaterally, he said, such as was happening in some countries which were introducing their own digital sales tax. This could lead to double taxation, he said and exacerbate international economic tensions. At an OECD ministerial meeting on Wednesday, the US expressed its strong opposition to these unilateral moves, which would largely affect American companies.
Global level
“I believe the changes other countries may make with unilateral tax changes are unwise and I believe they may have consequences in relation to the conduct of global trade,” Mr Donohoe told journalists after his speech.
This view of a multilateral approach appears to have been bolstered by a move in the US to look at taxation at a global level, rather than unilaterally.
Tax experts said the Minister’s speech was a significant outlining of Ireland’s position. Feargal O’Rourke, managing partner of PWC, said it was the most significant tax policy speech of recent years,setting out guidelines of what Ireland was looking for and where our red lines would lie.
The OECD is working toward a consensus solution in respect of digital sales tax to be completed by the end of 2020. As the first phase of BEPS process - which moved to close gaps where profits were being artificially shifted to low tax environments - showed, countries will then likely move relatively quickly to implement whatever has been decided.
