Hammond’s bold move could add momentum to EU digital tax proposal

Britain won’t get much revenue out of the new digital tax measure announced yesterday, but it does deserve some credit for forging ahead on this most important issue.

The move is bound to spur on further action in reforming the way multinationals are taxed, which is plainly broken.

It will also ratchet up the pressure on Minister for Finance Paschal Donohoe and the Government, who will likely veto any EU equivalent of Mr Hammond’s plan. From an Irish point of view, any significant reforms are always a little nerve-jangling given our reliance on FDI.

But in the current climate, and given the vituperative criticism levelled at this country from overseas, it’s difficult for a small country to present an obstacle.

Hence the noises emanating from Government about our openness to reform. Mr Donohoe has said he thinks the best place for discussing tax reform is at a global level, at the Organisation for Economic Co-operation and Development (OECD). In theory that makes sense, because it’s an international issue.

After all, mismatches between different countries’ regimes are what enables the aggressive planning to take place. Ireland’s objection to the EU proposal stems from its view that unilateral action by the EU could undermine international efforts to reach “a sustainable longterm global approach”, the Department of Finance told the Irish Independent last week.

And perhaps a unilateral action could have those effects.

But maybe it could also hurry the whole process along so that this issue is sorted and certainty can return to Ireland’s corporate tax regime.

Whether it’s from the EU or from the OECD, change is coming, and Mr Hammond’s move sees momentum gather behind the view that companies should pay tax based on where users are located, rather than where the company is based.

If that view prevails at OECD level then Ireland could be in for a bumpy ride.