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Thursday 18 September 2014

Revealed: €2bn cost of tax-rate clampdown

New rules on multinationals could halve income

Published 26/07/2014 | 02:30

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Minister for Jobs , Enterprise and Innovation, Richard Bruton
Minister for Jobs , Enterprise and Innovation, Richard Bruton
Jobs Minister Richard Bruton
Jobs Minister Richard Bruton
Brian Keegan

Ireland will lose €2bn a year worth of corporation tax revenue after a planned international clampdown on where companies pay their taxes, experts have warned a high-powered Dail committee.

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The proposed new rules to reduce tax avoidance by multinationals pose a "direct threat" to Ireland that could halve the country's annual tax take on business profits.

Ireland's corporation tax regime is back in the spotlight after US President Barack Obama was highly critical of American companies who move to this country to cut their tax bill, branding them "unpatriotic".

The country's corporation tax is under scrutiny due to the multinational companies locating here and availing of our low 12.5pc tax rate – or much lower rates in some cases. US politicians have accused Ireland of being a "tax haven" – a claim that has been vehemently denied by the Government.

The OECD, a body made up of 34 western economies, is drawing up plans to restrict the ability of multinationals to move their income around to minimise their tax bill.

Ireland is co-operating with the creation of the new rules for the worldwide corporation tax system.

However, a draft Oireachtas Finance Committee report on global taxation, seen by the Irish Independent, contains warnings that Ireland's corporation tax revenues, which amount to €4bn every year, will be halved under the new system.

Tax expert Brian Keegan is quoted in the report as saying: "Some of the OECD proposals would undoubtedly, result in that €4bn being reduced to €3bn or €2bn. That is the threat."

Speaking to the Irish Independent, Mr Keegan, who is Director of Taxation with Chartered Accountants, said: "We are not just talking about not being able to attract foreign direct investment any more, we are talking about not being able to sustain the current levels of corporation tax."

He added: "I believe it to be a direct threat to Ireland's corporation tax rate. Such a small number of companies pay such a high amount of the tax."

The warning is the new proposals have significant implications for Ireland's current corporation tax revenue, as it would force many of the major multinationals to relocate out of the country.

Mr Keegan says the vast majority of Ireland's corporation tax-take is paid by a small number of companies, so any movement would have dramatic consequences.

Another expert quoted in the report, Professor Jim Stewart, of Trinity College Dublin, said there "are implications for employment, PRSI and for the profits of the companies here" in the OECD proposals.

The OECD proposals, referred to as Base Erosion and Profit Sharing (BEPS), are seeking to tighten tax rules and treaties and to increase government tax information sharing.

The plan is to tackle tax-planning strategies used by large companies that exploit gaps and mismatches in tax rules to make profits 'disappear' for tax purposes.

The plans also wants to end the situation whereby 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.

The committee's report, which is not due to be published until after the summer break, finds that there is a broad consensus that Ireland is not a tax haven.

However, Prof Stewart says Ireland "does have features of a tax haven".

The report also finds that Ireland is not "uniquely malignant" in terms of its corporate tax regime, but there are flaws internationally which are impacting on Ireland.

The report found that, while phone and iPad maker Apple and its related companies were Irish incorporated, "they have very limited links with Ireland".

"The products don't physically pass through Ireland, the revenues don't pass through Ireland.

"The profits are accumulated in Ireland," the report states.

The report also contains warnings that much of the reputational damage caused to Ireland internationally relating to its corporation tax rate in the past 12 months has been "self-inflicted".

"We shot ourselves in the foot. A great deal of the international press coverage arose as a result of international news agencies picking up on reports or articles by Irish persons," said Conor O'Brien of KPMG.

Michael Taft, of Unite, is quoted in the report as saying that the row over our corporation tax rate is causing "considerable reputational damage to the Irish economy, to the point of ridicule".

The Irish Independent has confirmed that these comments sparked a "furious row" at a private sitting of the committee when there were calls from Sinn Fein's Pearse Doherty to have some comments from experts removed or altered.

Fine Gael's Dara Murphy and Liam Twomey objected, and Mr Doherty accused Mr Murphy of speaking "bullshit".

"Sinn Fein in order to seek political advantage are behaving extremely recklessly, and how they deal with the issue of reputational damage to the country," Mr Murphy said.

In response, Mr Doherty said that he had taken issue with the manner in which the report was drafted and that expert views were portrayed as the views of the committee.

Irish Independent

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