Peter Vale: OECD corporation tax plans have implications for multinationals here
TODAY'S report from the OECD is a further step on the long road to potentially fundamental changes to how taxable profits of multinational companies (MNCs) are calculated.
The report clearly has implications for Ireland given the number of MNCs here.
While there is still a long consultation process ahead before any changes are implemented, we can be sure that the OECD report will be pored over by the Department of Finance and some early scenario planning will be carried out. If the goalposts move, there needs to be a Plan B.
What the report essentially explores is how globalisation has dramatically changed how companies do business. The tax world has not kept up with this new way of doing business, meaning that many of the existing tax rules and principles have been ineffective.
For example, a company can now make significant sales in a country without creating a taxable presence in that country. This is a relatively recent phenomenon of the digital age. Bear in mind that the world’s top ten “born on the internet” companies are all located in Ireland.
Could companies be taxed based on where their customers are located as opposed to where the country of origin? This has been mentioned before as a possible scenario but I think it is unlikely to gain sufficient support and is arguably a flawed answer. Certainly Ireland would be against such an approach.
What is more likely is that the rules around Intellectual property (IP) exploitation will be given serious consideration.
There could be a positive in this for Ireland if more weight is given to substance and groups with IP outside Ireland are incentivised to move their IP here, where substance already exists. Clearly we would need to be able to offer compelling reasons for such a move.
What we got today was a plan to examine certain tax fundamentals in more detail, with initial output expected in 2014 and 2015. While significant changes may thus be some way into the future, the direction of change is becoming clearer and Ireland needs to be ready to react.
Peter Vale is a tax partner at Grant Thornton