The global economic recession cut growth, depressed tax revenues and forced most governments to borrow more to finance their rising deficits. Against that background, and with the public bearing the brunt of the austerity measures, the need for greater tax equity has won increasing support. Most people agree the burden of fiscal adjustment should be fairly shared by all and that large multinational companies should no longer be able to use aggressive tax planning to minimise their tax liabilities. Governments generally have become increasingly concerned at the ease with which multinational companies can do so, thereby depriving states of much needed tax revenues As a result, pressure has increased to change the global tax rules that facilitate major tax avoidance schemes.
That process of review is under way. The Organisation for Economic Cooperation and Development (OECD), is examining how to curtail some of the tax stratagems global companies use to minimise their tax payments. And the OECD will soon publish its non-binding recommendations for tax changes, which will then be open for public discussion. By 2016, the Group of 20 nations is expected to start considering a binding international tax plan.
The problem for the Government is how best to respond to the new challenge facing Ireland's corporate tax regime: one that is set against the background of strong international criticism of our corporate tax law including what's known as the "double Irish". Last year some influential members of the US senate – citing Apple's minimal tax payment – claimed that Ireland was a tax haven, and facilitated tax avoidance. And last month the European Commission began an in-depth investigation into Apple's tax arrangements with the Irish authorities, and whether these involved state aid. The Government has rejected the tax haven claim, and the Department of Finance has insisted that Apple did not receive a special tax deal.
The Department has sought the views of the public and of business on corporate tax, with submissions closing next week. This consultation process has been conducted in advance of the budget in October. There, the Government must decide whether to take the initiative, and announce some further changes in corporate tax law, before other countries do so – given that major reform is now seen as inevitable, and doing so would improve our later negotiating position. Most businesses, it is suggested, would favour the Government waiting for proposals to be first agreed, before responding. However, Government must also accept that on this issue, it cannot be captive solely to the views and interests of a single sector, however important. It must also ensure it balances those concerns with broader national and international interests, including concerns for a fair form of global corporate tax.
