Saturday 19 October 2019

Digital tax push by big nations could lead to trade war - Donohoe

Unilateral moves by France and Spain to target online giants is condemned

Taxing times: Paschal Donohoe
Taxing times: Paschal Donohoe
Taxing times: Paschal Donohoe with Irish Tax Institute President Marie Bradley at the conference at Dublin Castle
Prof Thabo Legwaila, of the University of Johannesburg addressing the event

David Chance

Moves by individual countries to impose digital taxes unilaterally could trigger a global trade war, Finance Minister Paschal Donohoe has warned.

Separate efforts internationally to create a minimum corporate tax rate - again driven by big economies - would undermine national sovereignty, the minister said.

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"Competitiveness is not a prerogative of just big economies," Mr Donohoe said.

Ireland has resisted pressure from countries including France to back an EU tax that will hit tech giants - many with major operations here - and now some, including the French, plan to press ahead on their own.

"The decision that some of the countries may make in relation to unilateral tax measures is unwise and they may yet have consequences in the conduct of global trade," the Minister said on the margins of a tax conference in Dublin Castle.

A day after he met fellow finance ministers at the Organisation for Economic Cooperation and Development meeting in Paris, Mr Donohoe said there was a tough timeline to achieve agreement by the end of 2020.

The Minister's comments came as France readied a 3pc digital tax on global internet giants with a turnover of more than €750m. Spain and Poland also have measures under consideration as part of a move to tax companies based on where their goods and services are consumed.

Officials present at the Paris meeting have said that the United States was engaged in a multilateral process to try and strike an agreement globally.

With the United States and China already going toe-to-toe in a bitter trade war and the risk that Washington and Brussels may be on the verge of tit-for-tat dispute over proposed US tariffs on cars, a digital tax war would represent a blow to the global economy where growth has slowed sharply.

Many of the targets for these taxes would be US tech companies.

"Across the world large economies have said that they want to look at how they can make further change in global tax policy," said Mr Donohoe. He said there was now the will to reach agreement on taxes within the OECD, even though he said there remains "a lot of work to be done" before there would be an agreement.

However, he stressed that Ireland, and other allies, would not give way to bullying by large nations on the issue of tax and said that another set of proposals being discussed within the OECD, so-called 'Pillar 2' talks, were "more problematic".

These would rewrite the scope of current taxing rights which are limited to businesses with a physical presence in a country. They have included proposals for a minimum effective tax rate, a move that would undermine national sovereignty in taxation as well as reinforcing the clout of large economies within the global tax system.

Ireland's corporation tax policy is based on applying an arm's length principle to tax profits attributable to economic activity and substance here.

Ireland collects a larger share of government tax revenues from company taxes than most other OECD countries with significant overshoots in corporate taxes, which came in at €10.4bn last year.

Ireland's tax regime has attracted criticism but has also been praised by both the IMF and the OECD for its progressive nature.

Irish Independent

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