Brexit to make CCCTB reforms harder to block, UCD academic warns

Fianna Fáil says it will oppose all measures that reduce Ireland’s tax sovereignty

Minister for Finance Michael Noonan: has been advised EU corporate tax reforms would “put Ireland at a disadvantage” in attracting future foreign direct investment. Photoghraph: Julien Warnand

Minister for Finance Michael Noonan: has been advised EU corporate tax reforms would “put Ireland at a disadvantage” in attracting future foreign direct investment. Photoghraph: Julien Warnand

 

Ireland will find it difficult to block proposed EU corporate tax reforms due to Brexit, a UCD academic has warned. The warning is echoed by global law firm Baker McKenzie in a letter to Minister for Finance Michael Noonan.

Dr Aidan Regan, a UCD lecturer in international political economy, said Ireland will find it much harder to block the Common Consolidated Corporate Tax Base (CCCTB) reforms this time due to Brexit.

“Ireland, the Netherlands, Luxembourg, and other small open economies always aligned in behind Britain as the big brother. Now that the big brother is not around, these countries are more exposed”.

“The major veto against things like the Common Consolidated Corporate Tax Base is now gone. The European Commission have made this one of their core priorities, and it’s no surprise this came back on the agenda after the Brexit vote,” Dr Regan stated.

Britain was the only EU member state to oppose the corporate tax reforms .

The European Commission’s proposal to introduce a CCCTB that would recalculate how large multinational corporations pay tax in the EU was launched in October 2016.

Foreign direct investment International law firm Baker McKenzie has also advised the

Mr Noonan that recently proposed EU corporate tax reforms “will put Ireland at a disadvantage” in attracting future foreign direct investment.

The new tax regime “will decrease the incentives for companies to locate” in Ireland international legal firm Baker McKenzie has outlined, in a letter sent to the Minister for Finance on the 20th of January 2017, released under the Freedom of Information (FoI) Act.

The advisory letter claims the CCCTB proposal “advantages market over producer states by giving weight to the location of sales in the apportionment formula, which disadvantages states such as Ireland which may have a small market but are home to export-oriented enterprises”.

The proposal would mean large multinational companies would pay corporate tax to several countries based on a proportionate formula, that takes into account where their products are sold and where staff are located, rather than the current system where companies just pay corporation tax in the state their headquarters are registered in.

The lobbying letter from the law firm stated it would “recommend that Ireland should continue to oppose this proposal, in conjunction with other similarly minded states”. Previous EU attempts to introduce a common corporate tax system in 2011 were stalled and eventually abandoned.

Department briefing documents prepared for Mr Noonan on the EU corporate tax plans outline that the “consolidation element of the proposal is almost identical to the 2011 version”. The documents, obtained under the FoI Act, state “the analysis in 2011 was that Ireland would lose a significant amount of corporate tax revenue under such a proposal”.

The Department of Finance has not officially come out in opposition to the EU proposals, and a spokesperson stated the discussions are at an early stage and “Ireland is actively engaging in these discussions.”

A joint Oireachtas report from the finance and public expenditure committee also criticised the scheme. The joint Dáil and Seanad report stated Ireland would lose substantial corporate tax receipts under the reforms.

Under the streamlined tax system multinational corporations would pay just one rate of tax in each country. Ireland currently has three rates that multinational companies are taxed under, the 12.5 per cent corporate tax rate, a 25 per cent non-trading tax rate, and a 33 per cent capital gains tax. Ireland, it was estimated, would lose in excess of €450 million a year from the abolition of the two higher rates, if it chose to set its 12.5 per cent rate as the single corporate tax rate.

Underestimated impact

Economic estimates from the EU detailed that Ireland would see its corporate tax intake decline by 0.14 per cent of gross domestic product (GDP), or €250 million (based on 2014 tax returns), under the CCCTB system. But the joint Oireachtas committee stated it believes the EU projections “underestimate the true impact of these proposals on corporate tax receipts”. Government economic think tank the Economic and Social Research Institute said in December it calculated that net Irish corporation tax revenues would fall by 5.5 per cent under the reforms.

The Oireachtas report claimed the proposals may cause multinational corporations to move their operations out of Europe, “and potentially make Europe a less attractive destination for investment”.