EU plans show the corporate tax questions facing the State in months ahead

Plans to require major multinationals to report country-by-country breakdowns of profits and costs in the EU are on the way, with the details now being negotiated. The Republic was one of a group of countries outvoted recently in trying to block the proposals. The reporting plan is an important move in itself, but also underlines the policy questions facing the State in the months ahead on corporate tax in general.

In a press briefing on Friday, Evelyn Regner, an Austrian Social Democrat MEP who is on the European Parliament team which will negotiate the implementation of the country-by-country reporting plan with the European Commission, said the proposal was the first step to a minimum corporate tax rate at an EU level. The Republic has long resisted EU plans on corporate tax harmonisation, particularly long-standing proposals for a common and consolidated tax base.

Instead, the Republic has championed OECD reform plans on corporate tax. These too bring potential challenges for Irish corporate tax revenue and for our overall tax regime. But the judgment of successive Irish ministers for finance, including the incumbent Paschal Donohoe, is that the State is better to stick with the OECD process.

The soundings in relation to the country-by-country reporting seem to confirm this. If the OECD talks fail, then the EU will push ahead with digital sales tax plans and also possibly wider plans for corporate tax reform. These will be more about where companies pay tax than how much they pay. They also risk a forceful reaction from the US and the possible revival of the trade tensions which bubbled under former president Donald Trump. The State would be caught right in the middle of this. The OECD process remains the best bet for Ireland.

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The inevitable direction now globally is towards tighter controls on multinational tax regimes. This is overdue – tax shifting had reached ridiculous levels, with complex tax avoidance structures in place. Exchequers are in need of cash after the Covid-19 pandemic. And some of the big digital multinationals are in the firing line over the power they exercise on information. This all carries dangers for Ireland. It may lead to changes in the years ahead in sectors such as pharma in particular. But recent investment announcements from companies such as Stripe and Intel give cause for hope, too.