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Corporate tax: The need for reform

In the past tax policymaking here has at times been too beholden to the demands of corporate Ireland

Corporate tax has been a controversial subject in recent years, as it emerged just how little tax many big companies pay on their profits. Big players have used – mainly – legal devices, typically spanning a number of jurisdictions, to cut their tax bills, the most notable examples being the tiny amounts of tax paid on the offshore earnings of many big US multinationals.

The companies say that this is all legal, that they have a responsibility to their shareholders to maximise earnings and that in any case they contribute economically in a range of ways. However, with government coffers under pressure across the industrialised world, the issue has come under sharp focus. The big companies pushed their tax planning too far – way too far in some cases – and are now facing a reaction.

The report by economist Séamus Coffey into the Irish corporate tax system needs to be seen in this context. The report was commissioned by the Department of Finance in the wake of the decision by the European Commission that Apple owed Ireland over €13 billion in tax and Ireland’s decision to appeal this ruling. It also comes as the OECD is leading international moves to close off the most egregious tax loopholes used by big multinationals – and as the EU ponders new moves.

Against this backdrop, policymaking here faces particular uncertainty and significant threats. For example, European Commission president Jean-Claude Juncker yesterday suggested key tax measures should in future be subject to qualified majority voting, which would remove Ireland’s veto. With reforms in the pipeline on the corporate tax base, and possibly on taxing big digital companies, this will worry the Government.

Coffey is correct to urge the Government to press ahead with reforms, in line with OECD thinking. In the past tax policymaking here has at times been too beholden to the demands of corporate Ireland. Better now to keep our approach in line with best international standards and thus give ourselves a better position to fight off threats from other EU states, many motivated by trying to grab revenue rather than any higher goal.