Further scrutiny on the Irish corporate tax regime
Much will depend on extent to which proposed reforms exceed OECD standards, and represent a major move towards harmonisation of EU tax rules
The European Commission has outlined proposals to tackle large scale corporate tax avoidance by multinational companies. The initiative follows measures agreed by the Organisation for Economic Cooperation and Development (OECD) last November to limit erosion of the tax base and profit shifting (BEPS) by companies that use aggressive tax practices to minimise tax payments. The OECD has set global standards for tackling avoidance and the commission hopes to secure coordinated action by the EU’s 28 member states to “fight aggressive tax practices by large companies efficiently and effectively”.
The commission’s move comes against the background of mounting political controversy in the UK on corporate tax. Google, in settling a tax claim, has agreed to pay £130 million (€170 million) to the British revenue authorities. Although hailed by the UK chancellor George Osborne as “a major success of our tax policy”, the settlement is seen as excessively generous to the company. The British revenue has accepted that Google’s action in moving profits from its UK sales to Ireland, to benefit from a much lower corporate tax rate here, was not tax evasion.
The profit shifting move did, however, involve aggressive tax avoidance whereby Google exploited a “double Irish” tax structure that has enabled it to minimise its tax bill. The Government in 2014 agreed to phase out this avoidance measure for new companies incorporating in Ireland from 2015; and for existing resident companies, such as Google, over a five-year period.
EU economics commissioner Pierre Moscovici said on Thursday that the billions of tax euros lost to tax avoidance has meant less money to finance public services and to boost growth. And this has resulted in higher taxes being paid by those Europeans and businesses that do play fair. The case for an equitable and more effective corporate tax system is hard to dispute and has won increased international support. The OECD, the European commission, and the European parliament have each proposed a range of measures.
The OECD measures are standards but are not legally binding. The commission’s proposals will involve consultation with the European parliament before the council of ministers decide on their adoption. The measures – if adopted – will be legally binding. The Government has accepted the OECD BEPS standards. Indeed, OECD secretary general Angel Gurria has praised Ireland for its willingness to support reform of the global tax regime. That reformist stance will be tested in the months ahead when the full implications of the commission’s plans are established. For Ireland. much will depend on the extent to which the proposed reforms exceed the OECD standards, and represent a major move towards the harmonisation of EU tax rules – a development that successive governments have long opposed.