Multinationals ‘fast-tracking revenue’ to pay tax liabilities ‘on today’s terms’, DEW hears

Frontloading tax now could mean steeper fall-off in receipts in years to come, economist warns

Economist Colm McCarthy says the companies have the capacity to accelerate revenue from future years by getting customers and clients to pre-pay in advance. Photograph: Brenda Fitzsimons

Economist Colm McCarthy says the companies have the capacity to accelerate revenue from future years by getting customers and clients to pre-pay in advance. Photograph: Brenda Fitzsimons

 

Several large multinationals operating in Ireland are understood to be fast-tracking revenue from future years in order to pay their corporation tax liabilities “on today’s terms”, economist Colm McCarthy told the Dublin Economics Workshop (Dew) on Wednesday.

Mr McCarthy said the companies, which are said to include banks in the Irish Financial Services Centre (IFSC) in Dublin, had the capacity to accelerate revenue from future years by getting customers and clients to pre-pay in advance.

This would allow them avoid possible changes to the global tax system coming on foot of the Organisation for Economic Co-operation and Development (OECD) agreement which proposes a corporate tax rate for big companies of at least 15 per cent.

Ireland is expected to lose at least 20 per cent or €2 billion – maybe more – of its corporate tax receipts as a result of the reforms, posing a threat to the public finances.

The frontloading of corporation tax now could make the fall-off in receipts up the line even steeper.

“I wonder if the authorities are fully alert to this because it means there could be a weakness in corporation tax revenue in the years ahead even if there’s no change in the worldwide corporation tax regime,” Mr McCarthy said.

“If this is truly going on, it will not flag itself to the Revenue Commissioners in the form of pre-payments by the companies that are paying the tax. It will take the form of pre-payments to them by their customers,” he said.

‘Poor value for taxpayers’

Mr McCarthy was contributing to a debate on the future of public services in the wake of Covid-19 at the workshop’s annual conference.

Repeated financial crises in Ireland had nearly always been followed by increases in taxes and cuts to the capital spending programme, he said, noting the capital budget was halved after the 2008 banking crisis, which ultimately led to underinvestment in water, housing and transport.

“Far from acting to stabilise economic activity, the capital programme here in Ireland has been an independent source of macroeconomic instability,” he said. The stop-start pattern of capital spending also delivered poor value for taxpayers, he said.

Mr McCarthy highlighted what he described as three “extraordinary debacles” to do with capital spending in the past two years: the National Broadband Plan; the National Children’s Hospital; and the National Maternity Hospital.

These projects had run way over budget, he said, while the two hospitals had been located “in traffic black holes in the inner suburbs of Dublin”.

He criticised Minister for Transport Eamon Ryan’s endorsement of a high-speed rail project in Ireland in advance of an adequate cost-benefit analysis.

The terminus cities/towns proposed for the high-speed link-up of Cork and Donegal would be the smallest in the world, Mr McCarthy said.

Also addressing the conference was chairman of Irish Fiscal Advisory Council (Ifac) Sebastian Barnes, who warned pressure on the public finances, even to cover the standstill cost of existing services and benefits, would increase over the next decade as the population ages and as a result of the need to invest in climate change-related infrastructure.