Ireland's corporate tax system is, it seems, under attack from all sides. The Biden administration has proposed a global minimum rate on US firms, talks at the OECD look set to lead to some loss in revenue for Ireland and now new plans tabled by the European Commission propose a shake-up in the way tax is collected from big multinationals across the EU. Corporate tax reform has been talked about for many years but given the political momentum significant change now looks inevitable.
The move by the European Commission is largely related to the OECD discussions, but also shows a desire to revive aspects of previous ideas long-discussed among EU leaders. The commission is in favour of the proposal for a digital sales tax, or levy, which is one of the key parts of the OECD discussions and it will propose to mandate the operation of such a tax around the EU in the event of an OECD agreement. It is also likely to push ahead with an EU plan if there is no OECD deal.
While this proposal will lead to losses of tax for Ireland – with big multinationals paying a levy on sales which will benefit bigger countries – it is the other element of the EU plan which will raise more concern in Ireland. That is a proposal to establish a reformed corporate tax base across the EU single market, following up whatever proposals emerge from the OECD in relation to tax rules and a proposed global minimum tax rate.
The commission has tried to pioneer this before, through a proposed common, consolidated tax base for corporations – a long-standing plan which is now being withdrawn. The new plan, due to be finalised by 2023, aims to replace this. The details are unclear but there is reference to a “fairer” allocation of the rights to collect taxation, which looks certain to have significant implications for Ireland.
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There is a long way to go here, of course, but there is now strong momentum for change. A meeting of G20 finance ministers in Vienna in July is seen as a key staging post towards an OECD agreement. A vital few months lie ahead.