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World tax deal that could knock €2bn off State income draws nearer

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Google’s Dublin headquarters

Google’s Dublin headquarters

Google’s Dublin headquarters

A new deal that could see multinational companies pay more tax where they sell their services took a step closer yesterday in a move that might punch a €2bn hole in State finances.

An outline deal brokered by the Paris-based Organisation for Economic Cooperation and Development (OECD) was signed off by 137 countries with the aim of getting a new regime in place by the end of the year.

One immediate impact of the deal is to put unilateral taxes of the kind proposed by France on hold.

"In a digital age, the allocation of taxing rights and taxable profits can no longer be exclusively circumscribed by reference to physical presence," the OECD said.

That means the likes of Facebook and Google could face tax bills in countries where they sell their products but do not have a physical presence.

These companies have taken advantage of low tax rates on offer in countries like Ireland to establish headquarters.

Critics say that move has robbed other countries of tax revenues.

However, their presence has boosted State finances, with €10.4bn in corporation tax receipts flowing into State coffers in 2018 alone.

That windfall has allowed the Government to shrink the budget deficit, pay for massive health cost overruns and finance large-scale investment plans.

The corporation tax take now accounts for close to a fifth of all tax revenues and estimates from the Department of Finance say that between €600m and €2bn a year in revenues could be at risk from the proposed changes.

There were no firm figures in the OECD report to show how taxing rights will be allocated. Those amounts will be thrashed out over the coming months in what look like fraught negotiations.

Irish Independent