View from Dublin: Hammond’s digital sales tax might be a problem
Forget Brexit for a moment. The British have inadvertently caused further problems for the Irish government and its love affair with large global tech companies.
In his Budget, British Chan- cellor of the Exchequer Phillip Hammond, introduced a digital sales tax of 2% on tech company revenues in the British market.
This is similar to the 3% digital levy proposed by the EU on certain revenues such as online advertising. The EU plan is strongly backed by France and the number of countries supporting it is growing.
Up to now our Finance Minister Paschal Donohoe has resisted the introduction of the EU measure. Ireland’s quibble has been that it would be better to resolve issues around how much tax tech companies pay, through a wider global or OECD initiative.
A 3% EU levy would simply drive these companies to somewhere like, well the UK, after Brexit. Hammond has now sunk a hole in that argument and it is becoming more difficult for the Irish government to put up resistance.
Our allies in opposing the measure are getting fewer with reports suggesting our position is now only shared by Sweden, Denmark and Estonia.
Throw in the unwavering support from our EU colleagues on Brexit (so far at least) and Donohoe may appear isolated and even ungrateful in saying no to the tax when he sits down next week with his EU counterparts in Brussels.
The measure would hit Irish corporate tax take by a modest enough €160m a year.
But the Government is con- cerned this could be just the start and it could raise doubts in the minds of decision-makers in these tech giants about what else might be coming.
If Donohoe is under pressure from other EU finance ministers on the issue, just imagine the pressure from tech companies themselves, who will want Ireland to oppose it and ensure it is not an Eu-wide initiative.
In truth, other countries could just go ahead themselves and arrange something similar, so we don’t have a full veto.
The French are leading the charge on this and it would be a big win for them, further cementing the influence of French president Emmanuel Macron at the EU table.
Donohoe could point to global competition for tech investment and how it could go outside the EU. This won’t be convincing.
He could also point to how countries like France are playing the tax card themselves to win post-brexit jobs from London.
France and Italy are offering the best deals on personal taxation for London bankers to move there. France is offering income tax breaks of up to 50% of salary for British bankers who move.
They will also exclude foreign assets and properties from their wealth tax.
A London banker earning an annual salary of €1m could increase his take-home pay from €542,000 in London to €732,000 in Paris if he moved. The figure for Dublin is €672,000.
When it comes to tech giants and tax, the jig is up on this one. This isn’t about how much tax these companies pay in Ireland.
It is about how Ireland has facilitated them in making sure they pay relatively little tax anywhere. It isn’t just about different countries competing to win FDI.
It is about allowing those companies to pay less somewhere else and less than their fair share.
The best we can hope for is that Donohoe at least secures something else in return. Maybe an extra couple of billion for the national rural broadband plan? After all, that is how the EU works.