Friday 22 June 2018

Ailish O'Hora: We cannot afford to drop ball in corporate tax game

European Commission President Jean-Claude Juncker. Photo: Reuters
European Commission President Jean-Claude Juncker. Photo: Reuters
Ailish O'Hora

Ailish O'Hora

Translated from the French, the benign-sounding word passerelle means ramp or gangplank.

 In the case of Ireland's corporation tax regime the word is far more threatening, as it is a clause in the European treaties that could be a game changer for us and if it is invoked could cost us dearly.

It is being used in European circles quite a lot recently, including by the President of the European Commission, Jean-Claude Juncker.

This is because the European Commission has upped the ante recently in relation to its plan to eradicate tax avoidance, particularly by multinationals, as other EU countries plan to cut their corporate tax rates in a bid to attract more investment.

Annual corporate tax receipts are worth over €7bn to Ireland but the growing focus in Europe is on the harmonisation of the corporation tax regime or common consolidated corporate tax base (CCCTB) in the coming years - and any such move could be damaging to our finances.

So it is in this context alarm bells should be ringing after Juncker's recent references to the possible use of these so-called 'passerelle clauses' in the treaties that could reduce countries' veto powers in relation to the harmonisation of corporation tax - if all heads of state or government agree to do so.

Harmonising corporation tax rates across Europe currently requires unanimity among the member states and under current rules Ireland would of course use its veto but there is growing momentum, particularly from the bigger EU states, that the harmonisation line be pushed further.

From the Commission's perspective, CCCTB is designed to strengthen the single market, and it offers multinationals one set of rules to calculate their taxable profits in the EU, rather than dealing with different national systems.

It includes a proposal to ban transfer pricing, a practice that allows multinationals to cut bills by shifting profits through low-tax countries such as Ireland. While our low corporation tax of 12.5pc is not directly threatened by the EU strategy, its benefits would be undermined, economists say.

Under the CCCTB proposals, tax would be allocated in a way that benefits larger economies where these companies would typically have a greater percentage of sales, assets and employees like France, Germany and Italy.

The threat of CCCTB has been described by Fiscal Council head Seamus Coffey as being more serious for Ireland than Brexit.

He recently said Ireland is "in a bit of a sweet spot" when it comes to attracting investment and raising corporation tax, particularly from US companies.

"CCCTB would no longer leave us in that sweet spot," he said.

Coffey added that the proposals would be "a threat" to Ireland and "a dramatic shift in terms of allocation of taxing rights".

"Let's just assume they both happen, in my view the CCCTB would be more serious. We can work our way around Brexit," he added.

While supporting the EU's plans to eradicate tax avoidance, the Government here is opposed to any change to the existing EU voting rights on corporation tax.

In addition, it must be remembered that the UK was a friend of Ireland's when the idea of tax harmonisation was first mooted and voted against it at the time.

Now, because of the result of the Brexit referendum, Ireland has lost a close ally around the table in Brussels. While there's no doubt that Brexit is the issue of the day, we can't lose focus on CCCTB.

Juncker's proposals, if successful, could wreak havoc on the largely successful Irish economic story which is increasingly skewed towards the Foreign Direct Investment (FDI) model even if other aspects of it are still considered important, for example agribusiness and tourism.

Remember the €13bn Apple question still looms large in Brussels and Ireland has long been singled out when the issue of harmonising corporation tax rates has arisen.

The bigger EU members are keen to push harmonisation over the line as they will be in line for biggest tax takes as they are bigger markets for multinationals - their gain would be our loss, of course.

And while we shouldn't be that surprised that Juncker has recently outlined that he is in favour of moving to qualified majority voting for decisions on the CCCTB, we should be concerned.

This is despite his protestations in a recent interview in the Irish Independent that his corporation tax plans are not anti-Irish.

Last Thursday, the European Parliament's chief Brexit negotiator, Guy Verhofstadt, came to Ireland bearing gifts of solidarity and support against the backdrop of Brexit.

In fact, he told the Dail that Europe would never allow Ireland to suffer because of Britain's decision to leave the European Union.

His message, he said, was one of solidarity with the Irish people.

"What we will never allow is that Ireland will suffer from the British decision to leave the EU," he said.

"That is a commitment that has been made by the European parliament and by the EU as a whole."

Of course, we can't take anything for granted in relation to Brexit.

But our voice needs to be heard in relation to any changes to tax harmonisation.

While we have some strong Brexit allies in Europe, not least the chief EU negotiator Michel Barnier, we could well be left out in the cold on taxation.

Our big ally in Europe is gone following the Brexit decision, we are now out on our own on this one, so to speak, with the support only of smaller EU voices like Cyprus and Malta.

And while there's no doubt that reform is necessary, the Government is right to stick to its guns that this should be the job of the Organisation for Economic Co-operation and Development (OECD), including the US.

I watched my beloved home county Mayo lose out to Dublin in the All-Ireland Football Final a week ago.

It wasn't a pleasant experience and Dublin finished it off.

So to use what's probably a hackneyed football idiom, we can't afford to drop the ball on corporation tax harmonisation even if Brexit seems to be the only game in town.

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