Ireland could collect more corporation tax under new plan

The new global template for taxing multinationals could lead to more corporation tax being collected by Ireland, according to the head of the team behind the new plan.

Pascal Saint-Amans, director of the Centre for Tax Policy and Administration at the Organisation for Economic Co-operation and Development, was speaking as the OECD said that up to $240 billion (€213 billion) is being lost annually to exchequers around the world because of aggressive tax planning by multinationals.

The final report of the OECD's Base Erosion and Profit Shifting (Beps) project has been published in Paris and looks set to be approved by the G20 heads of state later this year.

"This document sends out an extremely strong message to tax planners," Mr Saint Amans told The Irish Times. "The process is now moving on to the implementation phase."

He described the report as the “soft law” for global business taxation for the coming decades. The plan is the biggest development in global tax rules in a century.

From the point of view of Ireland’s interests, Mr Saint Amans said, the fact that the Beps plan seeks to create stronger links between where a multinational has its business substance, and where its profits are taxed, means that it should not be seen as a threat to Ireland’s crucial foreign direct investment sector.

A number of major multinationals, such as Microsoft, Facebook and Google, have substantial operations here that book their turnover from across Europe and further afield. However much of the related profits are booked in offshore locations such as Bermuda and the Cayman Islands. The Government has said it is to close down this structure, the so-called "double Irish", by 2020, in part in response to the global controversy about restoring fairness to global tax planning.

The double-Irish is over, Mr Saint Amans said. “But that does not mean Ireland will lose business. In fact I think quite the opposite. This should increase the taxation [collected in Ireland].”

The Beps project was commissioned by the G20 and is a response to concern at the way multinationals have been able to use mismatches between national laws and other aspects of the global tax system, to create aggressive tax planning structures.

“The stakes are high,” the final report says, with the amounts involved estimated as being “between 4 per cent and ten per cent of global corporation tax revenues, ie $100 billion to $240 billion, annually.”

The research indicates that multinational subsidiaries in low tax countries report almost twice the profits, relative to assets, of their global group, and the report is an effort to counter this.

The final report covers such areas as so-called hybrid financial products that facilitate aggressive tax strategies, treaty measures aimed at preventing double taxation that have led to double non-taxation, and the introduction of confidential country-by-country reports that will see revenue authorities get a clearer picture of how multinationals are structured.

The report is an agreed one at a technical level but some measures are more accepted than others, with the position to be taken by the Republican Party in the US among the major issues complicating the drive towards a new global regime.

While the Beps document says there is an urgent need to restore the trust of ordinary people in the tax system, many organisations campaigning for developing countries say the Beps plan does not go far enough in helping poorer countries get their fair share of tax from multinationals.

Among the forces driving the Beps process are fears that governments, in response to public concern about how little tax huge and profitable multinationals are paying, will introduce unilateral measures that will complicate the global market. Also, multinationals are becoming more and more concerned about the reputational damage they suffer by way of controversy over the amount of tax they pay.

On the other hand, the world’s largest economies want to ensure that the redrawing of the global rules on the taxation of multinationals, does not run contrary to their interests.

Peter Reilly, the Beps Policy Leader with PwC in Ireland, said the report has been produced within a tight timeframe and while it did not achieve all it set out to achieve, "it is still the biggest change in one hundred years in the area of international taxation."

On balance, he said, he believed the report was positive from the perspective of “Ireland Inc”.

However, he said Ireland will need to ensure the Beps plan does not create disadvantages for smaller economies, especially by way of changes to the international tax treaty network.