Corporate tax hit not as bad as feared – Donohoe
CORPORATE tax revenue in Ireland is expected to fall by less than previously feared if new international reforms to how companies are taxed are agreed later this year.
Finance Minister Paschal Donohoe said the State could lose up to €2bn in revenue “over a number of years” if changes laid out by the OECD last year are implemented. Previous estimates had put the figure as high as €6bn.
“It is possible that between €800m and €2bn of corporate tax revenue could be affected,” the Minister said.
The issue has become increasingly critical for Ireland as the Exchequer has become increasingly reliant on corporate taxes recently.
The widening deficit due to Covid expenditure and economic losses has made the sustainability of taxes even more urgent since last year.
Mr Donohoe was speaking at the launch of the Department of Finance’s new Corporation Tax Roadmap, an update on a previous strategy from 2018. This year’s roadmap is more focused on global tax reform, which has advanced considerably in recent years through the OECD process on taxing the digital economy.
Last October, the OECD published its blueprint on reforming cross-border taxes for multinational corporations.
The aim is to update international tax rules for the age of digital commerce, in particular to put a floor on tax rates and discourage big internet companies like Google, Facebook and Amazon from booking profits in low-tax countries like Ireland instead of where their customers are.
Mr Donohoe said that digital taxation was just one issue on that horizon that could affect outcomes for Ireland and he was committed to participating in the OECD process.
“Ireland should be inside the OECD agreement,” he said. “It is far better for us that there is stability globally in tax policy. It’s in our longer-term interest.”
Mr Donohoe warned that unilateral movement outside of the OECD process would encourage further trade tensions and jeopardise stability around transfer pricing rules.
“Agreement at an international level continues to represent the most desirable
‘It is far better for us that there is stability globally in tax policy’
pathway to sustainable tax reform, to avoid a patchwork of regional or unilateral measures which would not be conducive to a positive business environment,” he said.
He also said that if the OECD does not reach agreement, the issue of corporate tax reform will be left to the EU, which is likely to impose relatively harsher measures from an Irish point of view.
In that respect, Ireland is aligned with the US, which has been engaged in the OECD process, but has sought to mitigate the negative impact on the big US tech firms that are also the backbone of Ireland’s foreign direct investment.
Mr Donohoe has previously said that Joe Biden’s election as US president made it more likely that Ireland would lose corporate tax revenue in future years. In a November address to institutional investors, he said Biden’s election made it more likely that agreement would be reached at the OECD on how digital companies are taxed.
“Engagement from the Trump administration has been more active than the narrative suggests,” he said today. “But the expectation is that Biden will heighten the engagement now.”
The Minister also reiterated Ireland’s commitment to a 12.5pc corporate tax rate.