Donohoe warns of €2bn corporation tax loss to State
Changes to OECD regulations are inevitable and the Republic must prepare, says Minister
Minister for Finance Paschal Donohoe: ‘Changes to international taxation are on the way: We have no control over this and we must prepare for this.’
The State could lose up to €2 billion of its corporation tax revenue under new proposals to reform the global tax system, Minister for Finance Paschal Donohoe has warned. This would remove roughly one-fifth of corporation tax receipts, based on last year’s figures.
In an update to his Budget 2020 forecasts, Mr Donohoe said the changes, which are likely to give bigger countries more rights to levy tax on income earned from sales in their territories, could reduce corporation tax receipts here by an incremental €500 million a year from 2022 on and by up to €2 billion over the longer term.
Corporation tax is now the Government’s third biggest tax category behind income tax and VAT. And a reduction of this magnitude could be expected to affect future spending plans.
“While there is some uncertainty surrounding this figure, it is the department’s best assessment, based on ongoing work being carried out by the Revenue Commissioners, that the overall risk from Beps [Base erosion and profit shifting]-related changes could be in the range of €800 million to €2 billion,” he said.
The Organisation for Economic Co-operation and Development (OECD) is proposing a big shake-up of the current rules, which allow companies such as Facebook, Apple and Google to book profits and locate patents in low-tax jurisdictions such as the Republic to minimise tax bills.
While they have still to be agreed, the proposals are likely to mean some of the profits accounted for in the State by big multinationals are reallocated to other jurisdictions, effectively shrinking the tax base here.
The OECD expects to secure broad political agreement for the first phase of its reform agenda later this year. The measures are already said to have the backing of the United States, Germany and other large countries.
The proposed changes have, however, put an unwelcome spotlight on Ireland’s corporate tax take – which has doubled to nearly €11 billion in the past five years – at a time when the State is locked in a dispute with the European Union over its €13 billion Apple State-aid ruling.
“Changes to international taxation are on the way. We have no control over this and we must prepare for this,” said Mr Donohoe. “This is why we need surpluses.”
On a recent visit here, OECD head of tax policy Pascal Saint-Amans said that a global deal on tax could not entail big losers and big winners and Ireland would gain from “tax certainty”.
In his bulletin the Minister also upgraded his growth forecast for the Irish economy for 2020 to 3.9 per cent and to an average of 3 per cent a year for the period up to 2025, to take account of the extension to the Brexit time line and on the assumption that a free trade deal between the EU and UK is negotiated successfully.
Mr Donohoe also said he was projecting a budgetary surplus of 0.7 per cent or €2.6 billion for last year, which is significantly up on the 0.4 per cent previously projected.
Last week Department of Finance chief economist John McCarthy said the surplus would be used to boost the cash balances of the State’s debt-managing agency, the National Treasury Management Agency.
“This improvement naturally feeds into the following years. And the forecast now is that a budget surplus of 1 per cent of GDP [gross domestic product] can be reached at the earlier time of 2021, improving incrementally to 1.3 per cent of GDP by 2025,” said Mr Donohoe.
“Running budgetary surpluses in good times is the best way of de-risking our economy and our public finances from the shocks that – as a small open economy – are likely,” he said.
“At the same time, we are maintaining capital expenditure at high levels in order to address the bottlenecks that exist and to ensure that the infrastructure that is needed for a growing economy and society are in place.”