Confronting the inevitable on corporate tax in Ireland
OECD cites Ireland as ‘a strong and exemplary case of adapting and adopting’ to reform of the global tax regime
The Government is set to take a major initiative in discussions on global corporate tax reform, and in next month’s budget will announce measures to ensure multinational companies keep tax authorities better informed on their activities. The move comes as the Organisation for Economic Co-operation and Development (OECD) finalises its report on a major reform of international corporate tax rules. The OECD next month will publish proposals to tackle base erosion and profit shifting – where companies move profits to a low- or no-tax jurisdiction where they have no active presence. This tax avoidance tactic deprives states of a fair share of tax on the profits generated there, and allows companies to minimise tax bills and maximise profits.
The OECD’s recommendations will be set against the background of the European Commission’s case against Ireland, alleging illegal state aid. A year ago the commission then formed a “preliminary view” that Ireland had breached state-aid rules in two tax rulings (1991 and 2007) that Revenue had agreed with Apple.
Apple has strongly denied that it received favourable treatment from the tax authorities; the Government has rejected the commission’s initial finding, and said it would “vigorously contest” any adverse ruling in the European Court of Justice.
Nevertheless, the Government in last year’s budget – in response to growing international criticism – decided to phase out the “Double Irish”; a controversial tax avoidance mechanism used by multinationals to reduce tax bills.
The Government’s approach has been to accept the need to change the international tax rules and to work with the OECD in advancing its reform agenda. The Government’s intention is to require multinational companies to produce country-by-country reports on their global activities. Its proposal broadly corresponds with that of the OECD, which is designed to help tax authorities understand how multinationals organise their tax affairs, while also ensuring confidentiality is maintained.
OECD secretary general Angel Gurria cited Ireland as “a strong and exemplary case of adapting and adopting” to reform of the global tax regime. Much depends on whether the US signs up to the OECD’s proposed changes involving a country-by-country reporting system. Unless that happens, US companies, which have a large presence in the domestic economy – employing over 100,000 people – will be excluded from the reporting requirement. At any rate, further evidence of the Government’s acceptance of the need for reform of global corporate taxes will boost its credibility and leave it better placed to influence the negotiations on the implementation of the OECD’s reforms.