Government believes EU corporate tax reforms will fail

The Department of Finance does not believe the latest EU corporate tax reforms will succeed, according to correspondence between the last minister for finance Michael Noonan and a US coalition of international software firms.

The European Commission’s proposals for a Common Consolidated Corporate Tax Base (CCCTB), launched in October 2016, would recalculate how large multinationals pay corporation tax.

In a letter sent by law firm Baker McKenzie to then minister Mr Noonan on behalf of a US “Software Coalition” of firms, the group stated that it was encouraged by the Irish officials’ “pessimistic assessment of the prospects for EU adoption of the CCCTB regime”.

The letter was sent to Mr Noonan in January 2017, and followed on from meetings between Mr Noonan, Department of Finance and IDA officials, and Baker McKenzie representatives in Silicon Valley on November 18th, 2016. The letter was obtained under the Freedom of Information act.

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The “Software Coalition” is comprised of 24 companies, which in the past is known to have included Microsoft.

Publicly, the Department of Finance’s position has been that “Ireland is actively engaging” in the discussions around the new CCCTB proposals. A spokeswoman for the department said: “Ireland is engaging constructively with the proposal while critically analysing whether it is in line with Ireland’s long-term interests.”

The reforms would see large multinational firms paying corporation tax proportionately across EU countries based on where their sales, staff and headquarters are located. Currently a firm pays corporation tax in the country in which its headquarters is located.

Large producer-based economies such as Germany and France are strongly in favour of the reforms, which have been previously opposed by small open economies such as the Netherlands, Luxembourg and the Republic.

Baker McKenzie, representing the lobbying coalition of multinational firms, warned the CCCTB reforms will put Ireland at a disadvantage by reducing companies’ incentive to locate their headquarters in the Republic to avail of the 12.5 per cent corporation tax rate.

The lobbying coalition was “strongly supportive” of Ireland’s appeal against the European Commission’s ruling that Apple must pay back tax of €13 billion to Ireland, on the grounds that a legacy tax arrangement between the company and Ireland amounted to state-aid.

The letter said “the impact of the case on the perceived attractiveness of Ireland as a predictable tax environment goes well beyond the specific legal issues faced by Apple”.

“As we discussed at out meeting the recent spate of State aid cases brought by the European Commission are of significant concern to taxpayers doing business in Ireland … We therefore encourage Ireland to continue its vigorous appeal of the Apple case,” the letter stated.

‘Unjustified’

Separately, Reuters reported last night that the Minister for Finance, Paschal Donohoe said the European Commission’s Apple demand as unjustified.

In an interview with Germany's Frankfurter Allgemeine (FAZ) newspaper, Mr Donohoe said the tax rules from which Apple benefited had been available to all and were not tailored for the US technology giant. They did not violate European or Irish law, he added. "We are not the global tax collector for everybody else," FAZ quoted him as saying.

The money is currently being deposited in escrow.