Editorials

The Irish Times view on corporate tax reform: Ireland must support OECD process

Our strategy needs to recognise that change is now coming – and it is in our interest to have a clear and fair agreement

Ireland is a key location for multinational investment: it is not in a position to object to OECD reform. Photograph: Reuters

Tue Jul 30 2019 - 00:05

Alongside Brexit, international tax reform looks set to be the big economic theme of the Autumn. The Organisation for Economic Co-Operation and Development is seeking agreement on the next phase of its major programme of international corporate tax reform. While final agreement on the detail is not expected until next year, the coming months will be vital in seeking political consensus and seeing if countries will sign up to the basic concepts. As a key location for multinational investment, this is of vital national interest to Ireland.

The first phase of this OECD process has been to Ireland’s advantage, as it has encouraged major multinationals to relocate key intellectual property assets to Ireland and, it appears, to undertake other accompanying investments. This has helped to boost corporate tax revenue and this positive trend could continue for some time yet. However the second phase of the process, now under discussion, carries some threats for Ireland, both in terms of corporate tax revenues and our ability to attract foreign direct investment in future.

Ireland, with the support of some other countries, notably the UK, has been to the forefront in resisting a number of separate initiatives from the EU in the area of corporate tax, most recently the plan to introduce a digital sales tax. However part of the Irish reasoning in doing this is that we favour, instead, a wider international consensus reached via the OECD.

So, politically, we can try to influence the OECD talks, but – unlike at EU level – we effectively have no veto and in any case we have signalled our commitment to the process. Also, the problems which the OECD is seeking to address are the tax avoidance schemes which have allowed major multinationals to cut their tax bills to extraordinarily low levels. International opinion has swung behind this effort and, with the US supporting change, an agreement looks likely – and is required.

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Ireland has every right to fight its corner in the talks, of course. While tax avoidance is in the spotlight, the talks also involve countries fighting for advantage in terms of where tax revenue is paid. This is likely, in some cases, to be to Ireland’s disadvantage. Yet, provided the changes are sensible, the gains we have already made mean we are not in a position to object to the programme of change. That the system is, in parts, broken and needs reform is beyond question.

There will be significant pressure on Ireland as these talks gather pace. As the European home of many of the major US multinationals, Ireland has been at the centre of the debate on tax payments by these firms. Some of the criticism which has come our way is justified, some of it isn’t. But our strategy needs to recognise that change is now coming – and it is in our interest to have a clear and fair agreement.

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