Strong cor­po­rate tax re­ceipts are ‘sus­tain­able’ un­til 2020

Re­view of Ire­land’s cor­po­ra­tion tax code ac­knowl­edges trans­parency im­prove­ments Econ­o­mist makes 18 rec­om­men­da­tions to bring tax code more in line with OECD norms

The Irish Times - Business - - FRONT PAGE - EOIN BURKE-KENNEDY

Ire­land’s cor­po­rate tax code meets the high­est stan­dards in­ter­na­tion­ally, a Govern­ment-com­mis­sioned re­port has con­cluded. And it says the re­cent surge in tax re­ceipts from multi­na­tion­als based here will con­tinue un­til at least 2020.

The re­view, by econ­o­mist Sea­mus Cof­fey, who is also chair­man of the Govern­ment’s Fis­cal Ad­vi­sory Coun­cil, comes in the wake of a se­ries of con­tro­ver­sies con­cern­ing Ire­land’s tax regime, cul­mi­nat­ing in the Euro­pean Com­mis­sion’s rul­ing last year that Ap­ple should re­pay €13 bil­lion in back taxes to Ire­land. Mr Cof­fey was asked specif­i­cally to look at is­sues re­lat­ing to tax trans­parency, tax cer­tainty and the avoid­ance of pref­er­en­tial treat­ment, an al­le­ga­tion that has been re­peat­edly made against the Ir­ish Govern­ment in re­la­tion to Ap­ple.

His re­mit pre­cluded any ex­am­i­na­tion of a change to the State’s 12.5 per cent head­line rate of cor­po­rate tax.

The re­port noted that, since 2015, there has been a “level shift” in cor­po­rate tax re­ceipts flow­ing to the ex­che­quer, with a sig­nif­i­cant por­tion of the in­creased rev­enue com­ing from a just hand­ful of firms, par­tic­u­larly in the technology sec­tor.

About 40 per cent of the €7.4 bil­lion taken in last year came from just 10 com­pa­nies. This has prompted ques­tions over the sus­tain­abil­ity of the tax rev­enue and warn­ings that it should not be used for cur­rent spend­ing.

“Although it is im­pos­si­ble to be de­fin­i­tive and the volatil­ity in re­ceipts will re­main, the level-shift in­crease in cor­po­rate tax re­ceipts seen in 2015 can be ex­pected to be sus­tain­able over the medium term to 2020,” Mr Cof­fey’s re­port con­cluded.

His re­view claimed that Ire­land had reached the high­est stan­dards in­ter­na­tion­ally with re­gard to trans­parency. How­ever, it does make 18 rec­om­men­da­tions aimed at bring­ing the code more in line with cur­rent OECD norms and in­su­lat­ing the Govern­ment’s new knowl­edge de­vel­op­ment box, which pro­vides tax in­cen­tives for in­no­va­tion, from be­ing ex­ploited through loop­holes such as the now-de­funct “dou­ble Ir­ish”.

Among mea­sures likely to be con­sid­ered on bud­get day is a re­stric­tion on the tax write-off of­fered in re­la­tion to the trans­fer of in­tel­lec­tual prop­erty, a move de­signed to smooth out cor­po­rate tax re­ceipts for the ex­che­quer.

The re­view also rec­om­mended mod­ernising the regime gov­ern­ing trans­fer pric­ing, the amount sub­sidiaries charge each other for goods and ser­vices, which was also at the heart of the dou­ble Ir­ish loop­hole.

The re­port ad­vo­cated the adop­tion of a more ter­ri­to­rial tax sys­tem, where firms pay tax solely on rev­enue gen­er­ated here, and an en­hanced for­eign tax credit regime to main­tain Ire­land’s com­pet­i­tive­ness.

Launch­ing the re­port, Min­is­ter for Fi­nance Paschal Dono­hoe said the re­view made “very clear that cer­tainty and pre­dictabil­ity of cor­po­ra­tion tax were es­sen­tial el­e­ments” of Ire­land’s tax code. He noted that the 12.5 per cent head­line rate re­mained the bedrock of the State’s com­pet­i­tive tax regime, “and that is not go­ing to change”.

How­ever, Char­tered Ac­coun­tants Ire­land warned the mea­sures, if adopted, would in­crease busi­ness taxes.

“The Cof­fey re­port into cor­po­ra­tion tax pol­icy in Ire­land was born of po­lit­i­cal ne­ces­sity, but Govern­ment should be care­ful to use its rec­om­men­da­tions to mod­ernise the sys­tem, rather than as a jus­ti­fi­ca­tion to levy new taxes on busi­ness,” said Brian Kee­gan, the group’s di­rec­tor of tax and pub­lic pol­icy.

If adopted, the net ef­fect of the pro­pos­als would be to in­crease the tax take from the cor­po­rate sec­tor, he said.

Paschal Dono­hoe: 12.5 per cent cor­po­ra­tion tax rate is not go­ing to change

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