Accountants warn tax changes could harm investment
Published 25/07/2014 | 02:30
Companies should continue to be allowed to be based in Ireland without having to be registered here for tax, chartered accountants have warned.
The OECD is looking at closing tax loopholes which allow some companies to legally pay little or no tax.
The proposed changes to the international tax regime must continue to allow a company to be incorporated in Ireland but not pay tax here if its tax home is covered by a tax treaty, the chartered accountants have argued.
Failing to do so could damage foreign direct investment, the Consultative Committee of Accountancy Bodies Ireland (CCABI) said.
CCABI said "certain academics" and others had been making inaccurate and damaging claims about the way in which Ireland conducts its tax affairs.
It made the claim in its submission to the Department of Finance's consultation in relation to the so-called Base Erosion and Profit Shifting project (BEPS) from the OECD.
The representative group argued tax treaty arrangements that are currently in place must be maintained. And it claimed Ireland's corporation tax system is more transparent than elsewhere.
Under current laws an Irish incorporated company may be treated as not being resident here for tax purposes if a tax treaty is in place with its tax home.
"At an absolute minimum it will be important to retain the concept of Irish incorporated companies not being tax resident in Ireland, at least as regards those companies managed and controlled within our treaty partner countries," the CCABI argued.
"Any changes which reduce some of our tax advantages without presenting clear alternatives will damage foreign direct investment, our current corporation tax take, and employment prospects."
BEPS kicked off in 2012 in discussions among European and US leaders about multinationals not paying their fair share of taxes and governments' corporate tax bases being undermined.
The OECD effort calls for revising tax treaties, tightening rules and more government tax information sharing, with the project scheduled to finish by the end of next year,
In May the department of Finance launched a public consultation on how Ireland's tax system might respond to proposed international changes.
The OECD is already conducting a public discussion around its BEPS project, which could see tax avoidance loopholes shut down.
The Department's consultation, which ended this week, included six questions, including concerns about whether current international tax proposals would be of concern to Ireland, and whether Ireland's residence rules are appropriate in the context of the BEPS project.
The consultation makes it clear that Ireland's 12.5pc corporation tax rate will not change. The department said it received more than 20 "high quality" submissions.
"Officials will reflect on the feedback received and the results of the consultation will feed into the regular deliberations as part of Budget 2015," a department spokesman said.
CCABI argued the Government shouldn't move too soon on any BEPS proposals, and not before 2015.
Ireland has come under pressure in Europe and the US amid claims about its tax arrangements with multinationals.
The BEPS Action Plan provides for 15 actions scheduled to be finalised in three phases: September this year, September 2015 and December 2015. In September, the OECD will publish an in-depth report identifying tax challenges raised by the digital economy and the actions needed to address them.
Q & A
Q: So what's BEPS?
A: The OECD, a Paris-based club of economies, has an effort under way to tighten tax rules and treaties, and to increase government tax information-sharing. BEPS refers to tax planning strategies that exploit gaps and mismatches in tax rules to make profits 'disappear' for tax purposes. It also means profits can be shifted to locations where there is little or no real activity but the taxes are low, resulting in little or no overall corporate tax being paid.
Q: Are BEPS strategies illegal?
A: In most cases, they aren't. Largely they just take advantage of inconsistencies in the current rules. But even if they are legal, the OECD argues it distorts competition and claim businesses that operate cross-border may profit from BEPS opportunities, giving them a competitive advantage over enterprises that operate at the domestic level.
Q: So is Ireland's 12.5pc corporate tax rate under threat?
A: Ireland has stressed that it is committed to the 12.5pc corporate tax rate and nothing will change that. The OECD has signalled that issues such as the 'Double Irish' - where a proportion of a company's profits end up in a tax haven - could, however, be brought to an end.
Q: Why has BEPS happened now?
A: Largely for political reasons. As countries face austerity amid the financial crisis, it doesn't look good for big companies to be exploiting rules to maximise profits.
With the United States unable to muster the political will to overhaul its own tax code, the G20, a group of the world's top economies, last year asked for help from the OECD, which led to the 15-point BEPS project.
Q: How has the business world reacted to the BEPS plan?
A: It has sent shudders through the international tax planning business, a thriving community of lawyers, accountants and lobbyists who devise, carry out and defend strategies, usually legal, to help multinationals cut their tax bills.
Q: So when will changes be unveiled and come into force?
A: Completion is not expected until 2015 and it will have no force in law, with action then needed at national level. Getting corporate and government tax information systems in sync will be a challenge.