Far-reaching tax-code review could hit firms
The Department of Finance has opened consultations on revisions to Ireland's tax code that could see transfer-pricing rules changed to comply with the latest global tax rules - some of which could add extra reporting requirements for small businesses.
The consultation runs until April 2 and once it has been completed, changes to the tax code will be introduced in the 2019 Finance Bill and implemented from the start of 2020.
Transfer pricing works on the basis that an economic value can be assigned to each stage of production of a good or service and its use by companies has been criticised as a means of shifting liabilities to low-tax regimes like Ireland.
The most notable case of transfer pricing came when Apple's tax structures meant it paid tax equivalent to 0.005pc of its profits, in a move that was later judged as illegal state aid by the European Commission.
With 80pc of global trade now taking place as part of multinational company value chain, according to the United Nations, the focus of countries has turned to how to ensure that they get paid the taxes that apply to economic activity that takes place in their jurisdictions.
The difficulty of locating where taxes should be applied has been made even harder by the rise of tech companies and others who can easily shift intellectual property and intangibles from country to country.
Intangible assets are at the core of new proposals from the Organisation for Economic Cooperation and Development (OECD) aimed at halting the erosion of tax bases, which need to be written into law here after the consultation period as well as making sure that profits are allocated in the countries in which they occur and boosting recording of transfer pricing.
In addition to implementing the new OECD rules, the Department of Finance is seeking views on whether the transfer pricing rules should apply to all transactions including non-trading, capital transactions and transactions of small- and medium-sized companies as well as to deals negotiated prior to July 2010.
There are concerns over the additional requirements that could be imposed on small businesses, especially as Brexit looms as well as implementation periods for some of the rules.
The consultation comes as the European Commission is pressing for an end to national vetoes on tax policy within the EU, something that is opposed by the Department of Finance which says it is committed to implementing global rules.
"In addition, strengthening of our transfer-pricing regime is an important element in defending the robustness of Ireland's tax regime in international fora," the department said in its consultation paper. Finance Minister Paschal Donohoe has repeatedly said that the 12.5pc corporation tax rate here is not going to change.
Calculations made by Gabriel Zucman, an economics professor who specialises in tracking the effects of tax-shifting, estimate that half of the foreign profits of US multinationals have been booked in tax haven affiliates, with Ireland - which disputes such a description - accounting for 18pc.