The Government is facing yet more demands from Brussels to overhaul corporate tax rules as the European Commission pushes to revive proposals for a pan-European business tax regime.
A masterplan to be adopted today by the commission embraces several measures long resisted by Dublin in more than a decade of tax conflict with Brussels. The issue is acutely sensitive for the Government because reforms would erode corporation tax revenues that now account for 21 per cent of all tax receipts.
The commission’s plan, entitled “business taxation for the 21st century”, will go beyond global reforms discussed for years at the Organisation for Economic Co-operation and Development that the Government has supported.
“The context for EU business taxation policy has changed radically in the past year,” said a Brussels source, citing the economic shock set off by the coronavirus pandemic.
The commission wants swift action, saying it will roll out proposals in July for a digital levy on big tech companies. The levy would hit the like of Google, Apple, Microsoft and Facebook who use Ireland as their European headquarters. The Government dismissed previous attempts to introduce such an EU tax.
Brussels also proposes to develop a new pan-EU business tax rule book to replace the common consolidated corporate tax-base plan that Dublin rejected several years ago on the basis that it would harmonise tax. The new regime – the business in Europe framework for income taxation – will include a formula for the allocation of taxable profits between member states.
IMF warning
The EU plan comes weeks after US president Joe Biden promised a 21 per cent rate on the international earnings of American companies, well above the Irish 12.5 per cent rate.
The sensitivity for Ireland was made clear last week when the International Monetary Fund warned that a global minimum rate could in an "extreme scenario" wipe out half of the State's €11.8 billion corporate tax base.
The commission’s plan includes measures to compel large companies to publish their effective tax rate in the EU every year, which is often unclear from public filings
Another potential point of friction is the commission’s demand to increase EU taxation in member states, including an “own resource linked to the corporate sector”. It will also raise the prospect of a new financial transaction tax, a measure opposed by the Government at the height of the last financial crisis.
The commission will also pledge to continue using state-aid cases to clamp down on aggressive corporate tax avoidance, the mechanism it used to tackle Apple’s tax arrangement in Ireland. Although the EU’s General Court struck down the ruling last year, the commission has appealed the decision to the union’s highest court.
