Tuesday 16 October 2018

Tax road map delivers clarity at a time of a upheaval and uncertainty

Seamus Coffey, head of Fiscal Advisory Council
Seamus Coffey, head of Fiscal Advisory Council

Peter Reilly

The publication of Ireland's corporation tax road map brought few, if any, surprises, but serves two crucial purposes. It puts our path to tax reform in black and white for companies seeking clarity at a time of change and acts as a defence against the accusations that Ireland is not doing its part in the fight against aggressive tax planning.

By signposting upcoming reform, the road map acts as the proverbial bird in the hand for firms who have a presence in Ireland or indeed those who are looking to invest here. The old adage tells us that certainty trumps chance and companies, especially multinationals with significant investor bases, crave certainty more than most.

Certainty has been a cornerstone of Ireland's corporate tax regime and has offered us a competitive advantage over jurisdictions vying with us to seek investment. The road map highlights that a "stable and consistent" approach to policy-making is valued internationally - confirmed by the fact that it contained few surprises.

The surge of international tax reform, prompted by the global recession, is a challenge for governments and corporates alike as uncertainty breeds caution. Take the significant fall-off in investment decisions taken in the lead-up to and the aftermath of US tax reform - without certainty, or some form of foresight, informed investment decisions are difficult to make.

This road map, however, allows Ireland to embark on this journey of reform in a structured and consultative manner. It sets out the timelines of change over the next two to three years including items over which Ireland has no control, due to EU agreed Directives (eg CFC rules), and those which we do (eg moving to a territorial regime).

Through the Coffey report, Ireland has gone a step further than the minimum required, by determining how and where our regime is out of step with international norms. Hence, while Ireland has committed to act on the agreements made in Beps, and will have to implement EU agreed Directives, it is also embarking on a path of domestic reform to ensure that our offering is robust internationally.

The populist narrative, from some at home and abroad, is that Ireland is a tax haven seeking to bow to the might of multinational behemoths at the expense of others. The road map, which outlines the significant changes made to date and those still to come, should put that narrative to bed. This was further enhanced when the Department released its comment paper on proposed control foreign company (CFC) rules - a technical area but one which will further strengthen Ireland's corporate tax regime. This comment paper is another positive step in Ireland's consultative process and also shows that Finance Minister Paschal Donohoe may be looking to go beyond the minimum standard, which I would caution against, due to competitive concerns, but clearly shows Ireland means business. So, will doubters will be happy? Unfortunately they likely won't, as levelling blame, as we've seen from certain factions of the opposition, may raise more headlines than simply giving praise.

There is very little mention of Common Consolidated Corporate Tax Base (CCCTB) and maybe this is the Minister's way of refusing to give credence to a blatant tax grab dressed up as an important and rational international reform. In June, the dicta emanating from a Franco/German 'love-in' was that harmonisation would "boost EU competitiveness" leading to a more equitable union for all. However, as Seamus Coffey, head of the Fiscal Advisory Council, stated earlier this year, CCCTB would be a bigger threat to Ireland than Brexit. The release of the road map and indeed the technical CFC paper continue with Ireland's approach to informed policymaking. Therefore, while it didn't surprise, this road map will act as a key policy document for years to come, both due to what it says and, crucially, what it doesn't. I'll take that bird in the hand thank you very much.

  • Peter Reilly, Tax Policy Leader, PwC Ireland

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