The OECD hopes to finalise 15pc deal by October
Small firms are eyeing other tax breaks to offset what they believe is an “inevitable” future rise in corporation tax.
In a letter to the Department of Finance, the association for small and medium-sized enterprises, ISME, has called for an 8 percentage point cut to capital gains tax (CGT) and clarity on what deductions will be available under a global minimum tax rate of 15pc.
The Government has so far opted out of a global deal signed by 131 out of 139 countries at the Organisation for Economic Cooperation and Development (OECD).
The deal would see multinationals pay a portion of their taxes where they make their sales and ensure they pay a minimum of 15pc tax on their global profits. While it wouldn’t force Ireland to raise its 12.5pc rate, it would wipe out the benefits for foreign multinationals.
“If change is inevitable here, then we accept the 15pc corporation tax rate, but could the minister please look at things that we have been suggesting for years as substantially out of whack – and CGT is way out of whack,” said ISME chief executive Neil McDonnell.
“And if you’re gong to set a global minimum rate, then you need to start looking under the bonnet and decide what is deductible against that because otherwise you’ll have done a huge amount of work for nothing.”
The OECD is still working out the details on the 15pc rate, which it hopes to finalise by October.
Last week, Finance Minister Paschal Donohoe, launched a public consultation on the OECD deal, saying he was committed to fighting for the 12.5pc corporate tax rate.
But ISME says concentrating on capital gains taxes will be a better use of his energy.
“We don’t see it as beneficial for Ireland to waste a huge amount of political capital opposing this when there are lots of other things that need to be addressed,” Mr McDonnell said.
“There is no point in Paschal [Donohoe] doing a King Canute on it if 130-odd countries have signed up to this, even though we think the methodology is distinctly fishy.”
ISME wants capital gains tax reduced from 33pc to 25pc, with “dynamic” rates as low as 10pc for companies that stay in the market for longer.
“This would incentivise the long-term development of strong Irish companies instead of the current trend where successful start-ups sell out at a relatively early state of maturity,” ISME said in the letter.
ISME estimates a 30pc increase in the Exchequer’s tax take if the capital gains rate is “somewhat lower”.
The Government saw a massive windfall after former finance minster Charlie McCreevy halved the capital gains tax from 40pc to 20pc.
Mr McDonnell says the lower CGT rate could exclude land or property, if necessary, to avoid firms making windfall profits from development sales.
Profits made from land sales are not currently included in a company’s taxable income for corporation tax purposes.
Small firms are already entitled to tax reliefs, including on research and development and startup capital.