THE OECD report on tax suggests there will be significant changes to the global tax landscape but they can also mean opportunities for Ireland.
1. While the OECD has done significant work in preparing today’s report, there is a considerable task ahead in terms of bringing the work to conclusion and in particular getting consensus from all member countries on an agreed implementation plan.
2. However, it is clear that the OECD is fully committed to the successful conclusion of the base erosion and profit shifting (BEPS) project. It is also clear that there will be significant changes ahead to the global tax landscape, with the only uncertainty being timing.
3. BEPS offers significant opportunity for Ireland as there is a focus on substance, with the OECD keen to see taxable profits aligned with real activity. Ireland is perfectly placed to benefit from such a new global regime as the large multinationals here all employ significant numbers. This puts us at a considerable advantage, in the longer term, compared with competing jurisdictions that have built regimes less reliant on actual substance.
4. However, BEPS also represents a significant risk for Ireland, in particular if we implement changes now to our tax regime that make us less competitive from a tax perspective vis a vis competing jurisdictions. By taking pre-emptive unilateral action now, we may gain some points from a reputational perspective but we also run the risk of significant existing or future investment going elsewhere, particularly if other jurisdictions maintain their own generous tax incentives. Given that the final lie of the land is unclear, the prudent approach is arguably to follow the BEPS project to completion before deciding on the best course of action. Only then will the parameters of the new global tax environment be clear.
5. A statement on which course of action Ireland is to pursue in relation to international tax strategy will be included in the Minister’s Budget speech next month. This will be watched closely by overseas investors around the world. At a minimum, we must give investors certainty as to both our short and long term tax strategy. If we get it right, the BEPS initiative has considerable potential upside for the Irish economy. However, a wrong manoeuvre could be costly.
Peter Vale is a tax partner at Grant Thornton.