Ireland could lose more than 10 per cent of its corporation tax revenue under new proposals to reform the global tax system, business lobby group Ibec has warned. Based on last year’s tax take, that would equate to just over €1 billion.
The Organisation for Economic Co-operation and Development (OECD) is proposing a major shake-up of the current rules, which allow companies such as Facebook, Apple and Google book profits and locate patents in low-tax jurisdictions such as Ireland to minimise their tax bills.
The proposals, published on Wednesday as part of an OECD consultation process, would give bigger countries more rights to levy tax on corporate income earned from sales in their territories.
It also means some of the profits accounted for in Ireland by big multinationals would be reallocated to other jurisdictions, shrinking the tax base here.
Ibec said the proposals, if implemented, would represent the most fundamental change in global corporate tax policy in a century and would clearly disadvantage small exporting economies relative to larger consumer markets
"They will mean some reallocation of taxing rights to larger importing countries and, as a small exporting country, may mean the Irish exchequer will lose a proportion of its corporate tax base," Ibec chief economist Gerard Brady said.
“This all depends on the final rates agreed, and while it is still too early to tell, we think 10 per cent or more of the corporate taxation currently in Ireland could potentially be at risk.”
The OECD's reform agenda has been given added impetus with countries such as France and the UK threatening to unilaterally adopt plans for a tax on digital companies if the current rules are not changed.
“The current system is under stress and will not survive if we don’t remove the tensions,” OECD head of tax policy Pascal Saint-Amans said.
On recent visit here, Mr Saint-Amans said a global deal on tax “cannot entail big losers and big winners” but must strike a balance, while insisting that Ireland would gain from “tax certainty”.
The OECD expects the first sign of whether there is broad political support behind their proposals next week when finance ministers from the G20 group of nations discuss them at a meeting in Washington, but the measures are already said to have the backing of the United States, Germany and other large countries.
Developing economies such as India are also expected to gain taxing rights over big tech multinationals for the first time because although the companies sell and market products widely in their jurisdictions, they often have no physical presence.
“In a digital age, the allocation of taxing rights can no longer be exclusively circumscribed by reference to physical presence,” the OECD said in its consultation document.
The OECD’s proposals are likely to put an unwelcome spotlight on Ireland’s corporate tax take, which has doubled to more than €10 billion in the past five years, at a time when it is locked in a dispute with the European Union over its €13 billion Apple state aid ruling.
The Government said it noted the OECD’s proposals. “Ireland is actively involved in this ongoing work at the OECD to reach a global consensus on addressing the tax challenges of digitalisation,” a spokesman said.
As part of Budget 2020, the Department of Finance published a report which warned that a major "shock" to Ireland's corporation tax base could leave a €6 billion hole in the public finances.