Monday 27 May 2019

Under siege: world leaders take 'tax haven' swipe at us

Brexit blow just as we need to show we have united EU support

Taoiseach Leo Varadkar. Photo: AP
Taoiseach Leo Varadkar. Photo: AP

Gavin McLoughlin in Davos

Ireland's corporate tax regime has come under siege as potential Brexit chaos looms.

Taoiseach Leo Varadkar and Finance Minister Paschal Donohoe were yesterday forced in front of the world's most influential people at the World Economic Forum in Davos to defend how this country taxes big companies.

Criticism from world leaders highlighted how Ireland's international image has become inextricably linked with our tax regime.

Our low corporate tax rate, as well as loopholes that have allowed big companies to pay minuscule amounts of tax, have been denounced by critics as unfair to other countries that could be getting tax revenues instead.

Polish Prime Minister Mateusz Morawiecki made an emotive plea for reform - saying EU "tax havens" should be abolished in a thinly veiled swipe at Ireland. He linked his country's history with Communism to the issue, saying history made it even more important that there be a "level playing field" when it comes to tax.

The comments highlight the delicate diplomacy Ireland must perform it if wants to keep its tax sovereignty and get support on Brexit.

“There are tax havens in Europe which abuse their taxation systems to the detriment of other countries. And we should stop this because this is not helping the European Union to build trust towards each other,” he said, sitting beside Mr Varadkar for a panel discussion in Davos.

Mr Morawiecki’s comments at Davos came just a day after his foreign minister, Jacek Czaputowicz, suggested the backstop proposal could be limited to five years, a comment which reflected a significant departure from the EU’s stance in Brexit negotiations.

Separately at Davos, the head of the influential Organisation for Economic Co-operation and Development (OECD) sharply criticised how Apple has been taxed here.

“He [Mr Donohoe] says every country has to have the sovereignty to fix taxes. And I totally agree, the OECD has never said that there is a tax which everybody should adopt,” OECD secretary general Angel Gurria said.

“What we were against were the sweetheart deals...we just found out with the Apple case, 0.05pc. Not bad eh? It’s a good low tax rate. So there you have a situation where you say: the system is being abused, the system is being gamed, and you basically do not want that either. You want companies to pay their fair share.”

The impact of the criticism will be magnified by the fact the OECD, an international body with 36 member countries, is the forum where Ireland has consistently said that tax reform should take place.

Mr Gurria said, however, that changes to the Irish system meant that the Apple case could not happen again.

In 2016, the European Commission ruled that Apple got illegal state aid from Ireland, and ordered it to pay €13bn in back taxes, and another €1bn in interest. The Government has always denied giving Apple a sweetheart deal and is appealing the ruling, as is Apple.

“We disagree with the assessment that the European Commission made... but we have played by the rules in relation to it. We were asked to put in place a process to collect €14bn. We have done that, all that money has been collected,” Mr Donohoe said, referring to the 2016 ruling and the subsequent collection of the money which is being held in escrow account pending the outcome of both appeals.

Mr Donohoe said he would not be cutting Ireland’s corporate tax rate in response to a question about whether a cut by Donald Trump in the US rate could spark a ‘race to the bottom’. “I will not be reducing our rate. I’ve absolutely no plans to do it at all. Ireland will not be part of [a race to the bottom],” he said.

Mr Varadkar said that Ireland was “forever closing tax loopholes” and would continue to do so. He said getting rid of loopholes has been a factor in the boom in corporation tax receipts.

“I think big companies should pay their taxes... should pay them in full and should pay them where they are owed,” he said.

The current debate on international tax reform focuses on whether companies should start paying tax according to where their products are consumed. That would hit Ireland because it has a small population of consumers.

Mr Varadkar said that the principle should be that a company is taxed where value is created, not where its products are sold. That principle benefits Ireland because tax can be levied on companies who are based here, but who sell the vast bulk of their products elsewhere.

Mr Morawiecki said this argument was “an interesting intervention by Leo”. “We have to find out a common denominator,” he said.

Irish Independent

Also in Business