Peter Reilly

W e can­not af­ford what the EU is try­ing to sell

Irish Independent - - NEWS - Peter Reilly

SEA­MUS Cof­fey, an econ­o­mist and lec­turer from UCC, is now the face of Ir­ish tax­a­tion and he has had a pretty hec­tic few days!

On Wed­nes­day Mr Cof­fey ap­peared be­fore the Bud­getary Over­sight Com­mit­tee in his new role as Chair of the Ir­ish Fis­cal Ad­vi­sory Coun­cil which fol­lowed hot on the heels of the much an­tic­i­pated ‘Cof­fey Re­port’ that fo­cused on Ire­land’s tax code.

Both his ap­pear­ance be­fore the Com­mit­tee and his de­tailed re­port give plenty of food for thought on the fu­ture of Ire­land’s cor­po­rate tax code and the ever present threats to our com­plete sovereignty on tax mat­ters.

A €4bn ad­just­ment, as put for­ward by Cof­fey as the po­ten­tial rev­enue loss that would stem from EU tax har­mon­i­sa­tion, moves the tax pol­icy con­ver­sa­tion quickly from a the­o­ret­i­cal mat­ter to a bud­getary one.

The CCCTB is ef­fec­tively two sep­a­rate pro­pos­als that have been pulled to­gether. The first re­lates to EU coun­tries com­ing to an agree­ment on ap­pro­pri­ate rules that would mean that the tax base of a com­pany would be the same ir­re­spec­tive of whether it was sit­u­ated in Ire­land or, say, France.

The the­ory here is gen­er­ally sound as a com­mon set of rules would re­duce the com­pli­ance bur­den on com­pa­nies, how­ever it would re­strict the abil­ity of coun­tries to make spe­cific tweaks nec­es­sary to help achieve their cur­rent eco­nomic goals.

The sec­ond part to the pro­posal though is where the real is­sue lies.

The con­sol­i­da­tion sug­gested by the EU com­mis­sion would lead to a change in the way tax rev­enues have thus far been al­lo­cated as it would fo­cus on ap­por­tion­ing these rev­enues based upon the size of the var­i­ous mar­kets in which a prod­uct/ser­vice is sold rather on the value chain which led to the cre­ation of the prod­uct/ ser­vice.

Clearly Ire­land would draw the short straw in this re­gard.

It is timely there­fore that Mr Cof­fey has put this in con­text and has stated, in his view, that this threat is a big­ger risk to the Ir­ish econ­omy than Brexit.

The mes­sage is clear: we can­not af­ford what the EU are try­ing to sell.

It is for this rea­son that we can po­ten­tially be some­what re­laxed about CCCTB, in that no gov­ern­ment, ir­re­spec­tive of their po­lit­i­cal lean­ings could make a de­ci­sion to move for­ward with a pro­posal which, over time could put the coun­try’s pub­lic fi­nances in such a pre­car­i­ous po­si­tion.

How­ever the threats un­for­tu­nately do not start and end with the CCCTB. In the last few days the EU has stated its de­sire to ad­dress the tax­a­tion of the dig­i­tal econ­omy.

Euro­pean Com­mis­sion President Jean-Claude Junker has sug­gested that for this pro­posal coun­tries should not be af­forded a veto.

Would this not rep­re­sent a bla­tant in­fringe­ment on sovereignty? Cru­cially the OECD have weighed in and sug­gested that the EU would be best served to wait un­til they fin­ish their work on this dif­fi­cult area – too many cooks, etc.

The prob­lem though is that the EU are not gen­er­ally minded to heed ad­vice from the OECD, es­pe­cially at a time when the power strug­gle on tax mat­ters be­tween Paris and Brus­sels has never been greater. It is clear, how­ever, that tax rules have strug­gled to keep pace with the dig­i­tal rev­o­lu­tion, but blunt means of tax­a­tion such as a turnover tax will lead to in­equitable re­sults. Why should a soft­ware provider’s de­liv­ery method (ie, via down­load rather than via a phys­i­cal disc) im­pact its tax bill?

I am not sug­gest­ing that the so­lu­tion is ob­vi­ous or easy but rushed law of­ten leads to bad re­sults. No prob­lem how­ever is in­sur­mount­able and it is in­cum­bent on those im­pacted (in­clud­ing Ire­land and the large dig­i­tal MNCs) to lead the charge on de­vis­ing the best way for­ward, or else pro­pos­als like the EU’s won’t go away and coun­tries will even­tu­ally take uni­lat­eral ac­tion of their own.

So where does this leave Ire­land?

In a time of un­prece­dented in­ter­na­tional tax pol­icy re­form the Cof­fey re­port both serves as a demon­stra­tion that Ire­land’s cor­po­rate tax code is sus­tain­able, fair and trans­par­ent, but it also acts as a blue­print for fu­ture mod­erni­sa­tion and re­form.

Cer­tainty to­day, pos­si­bly more so than low tax rates, is a key com­po­nent con­tribut­ing to in­vest­ment de­ci­sions and if Ire­land uses the Cof­fey re­port as a road map it should reap the ben­e­fits in terms of in­creased in­vest­ment be­ing placed here on the back of a sta­ble and sen­si­ble regime.

Peter Reilly is a tax pol­icy leader at PwC

The mes­sage is clear: we can­not af­ford what the EU are try­ing to sell

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