Taoiseach Leo Varadkar has ruled out support for a proposed European Union levy based on corporate profits that would hit Ireland harder than any other member of the bloc.
The proposal laid out by the European Commission would levy 1.5 per cent of national corporate profits from all EU governments to help repay a growing debt pile created by a Covid-19 economic stimulus scheme.
Mr Varadkar said it would be a step too far after Ireland had already agreed to raise its corporation tax rate from 12.5 per cent under the OECD deal.
“We’d be very much opposed to any new measure related to corporate profits,” Mr Varadkar said. “We’ve only just signed up to an EU and international agreement to raise our corporation profit tax to 15 per cent; we’re going to do that in the new year,” he said.
“I really, really would be very much against any attempt now to bring in another new corporate tax measure on top of that. It wouldn’t be in Ireland’s interests, and it isn’t what we signed up to.”
Ireland would be harder hit than any other EU member state by the proposal, the head of the European Court of Auditors, Tony Murphy, told The Irish Times, because the levy would be applied to the percentage of gross national income (GNI) that is made up of corporate profits.
Ireland is an outlier within the EU, as almost 80 per cent of GNI comes from corporate profits due to the substantial presence of multinational companies.
This means 1.5 per cent levy would apply to 80 per cent of GNI, amounting to a contribution of about €1.5 billion annually based on current figures.
On average, EU countries would be levied on just 23 per cent of their GNI as this is the proportion made up from corporate profits. Mr Murphy said the closest comparable countries to Ireland are Malta and Luxembourg where corporate profits make up about 40 per cent, meaning they may join Ireland in opposing the proposal.
The levy requires unanimous support of EU member states to be approved, giving Ireland a veto.
One way or another the EU’s debt pile will have to be paid back, however. Repayments for the pandemic-era stimulus fund based on joint EU borrowing start to come due in 2028.
“If these proposals are rejected by member states, they will have to come up with other ones,” Mr Murphy said. “2028 will come around quicker than you know.
“If they don’t [find a way], they will have to pay from the EU budget which will affect the money they have for other activities, or they will have to ask member states to increase contributions,” he continued. “It’s between the devil and the deep blue sea.”
EU audit
EU debt increased to a new high of €344.3 billion at the end of 2022, according to a the annual report of by the European Court of Auditors released this week.
Ireland’s net contribution to the EU in 2022 was €1.1 billion, the report revealed, as it received €2.4 billion from the EU budget mostly in payments to farmers and in rural development funding, while paying a contribution of €3.6 billion. The contribution was based on a percentage of GNI, plus customs and VAT levies of €482 million and €323 million respectively.
The EU paid €500 million in interest on the Next Generation EU borrowing last year but these costs are expected to rise as it is set to face higher interest rates going forward. The bloc has so far only borrowed and distributed 31 per cent of the promised Next Generation EU grants, which are ultimately set to reach a total of €337 billion.
Interest rates were low when the stimulus was agreed but these have risen dramatically in line with decisions by the European Central Bank, meaning the EU now faces rising repayment costs as it continues to borrow to distribute the remaining grants.
In their report the auditors flagged a jump in the rate of errors in the EU’s budget, such as spending on costs that are ineligible under procurement and state aid rules.
The error rate in cohesion funding surged to 6.4 per cent last year compared to 3.6 per cent in 2021, according to the auditors. Mr Murphy said that pressure to spend money quickly before a deadline is partly to blame for errors.
He warned that, for this reason, Next Generation EU spending may face similar issues because it is similar to cohesion funding and there is likely to be a rush to spend a backlog of money as countries are currently lagging behind in their ability to draw down funds.
“I think our big issue is we’re worried there’s a lot of money out there or available ... that hasn’t been drawn down or spent,” Mr Murphy said.
“If there’s pressure coming up to deadlines, people will have to spend under pressure and there will be more mistakes.”
