Digital tax: Ireland must strike a balance between realism and self-interest
Change is coming. A clever strategy is to position ourselves for this, rather than fighting for a doomed status quo
It’s clear that a way needs to be found to get a fairer contribution in corporate tax from big multinational players in the digital sector such as Apple, Google and Facebook. Photograph: Damien Meyer/AFP/Getty Images
There is no doubt a way needs to be found to get a fairer contribution in corporate tax from big multinational players in the digital sector such as Apple, Google and Facebook. The details which have emerged in recent years have shown such companies organising their affairs so as to pay very little tax on profits earned outside the US market. Even the companies themselves must now realise this is unsustainable – they pushed the tax-planning game way too far and will now pay a price.
The latest proposals from the European Commission on this issue reflect some impatience in the big EU capitals on the pace of reform, largely led to date by the Organisation for Economic Co-operation and Development (OECD). The commission’s plan is an attempt to accelerate action, both towards a longer-term solution on this issue and also – by the imposition of a shorter-term tax measure – a bid to ensure these companies pay more while detailed proposals are being considered.
This move carriers some dangers for Ireland, both in terms of our corporate tax revenue base and our ability to attract foreign direct investment. To an extent, this is inevitable. The old approach of using tax as a key vehicle to attract investment here is set to become less important in the years to come. The interplay of changes to US tax rules and the proposed changes in Europe are likely to be significant.
Ireland can legitimately point to shortcomings in the interim measure proposed by the European Commission. It is an unusual and blunt approach, targeting revenues rather than profits and applying only to a small group of companies. It has already been criticised by the US as discriminatory and unfair and will increase existing transatlantic tensions on economic issues.
However, it has the support of many of the big EU members and it will be interesting to see how many countries share Ireland’s reservations at this week’s EU summit. The wider news agenda could push the debate in either direction. The Facebook controversy has hardened opinion against the tech giants, while on the other side of the argument some leaders reportedly fear the plans could stoke trade tensions with the US.
Whatever the fate of the interim plan, this issue is not going away. We have made some reforms to our corporate tax code, but will need to go further – and will also need to take a constructive and realistic approach to the discussions getting under way. Ireland has supported the OECD process and needs to be actively engaged in seeking solutions. This does not mean we must abandon our self-interest in attracting and retaining investment here, nor surrender tax revenues. But change is coming here and a clever strategy is to position ourselves for this, rather than fighting for a doomed status quo.