Corporate tax reform has become an international battlefield as countries seek to defend or attack rate reductions, so how is this affecting Ireland’s global standing?
This article was first published in the March 2017 Ireland edition of Accounting and Business magazine.
The heady combination of impending Brexit and the nascent Trump presidency, as well as the EU Commission’s renewed focus on tax harmonisation, has created uncertainties for Ireland Inc. at the start of 2017 that would have been unthinkable just a year ago. Providing
a space for reflection on this potentially hostile environment, The Irish Times Corporate Tax Summit in association with PwC brought together political leaders, policy makers and opinion formers under the heading ‘Ireland vs the world’ at the Westin Hotel, Dublin, on 24 January 2017.
The event was a timely opportunity to reflect on Ireland’s strengths and weaknesses in terms of its tax policy and global reputation, with attention not just on the challenges emanating from the US and UK, but on the competing perspectives of the Irish government and the EU Commission on the Common Consolidated Corporate Tax Base (CCCTB). Contributions by the event’s keynote speakers – the minister for finance Michael Noonan and EU commissioner for economic and financial affairs, taxation and customs Pierre Moscovici – provided a sense of where debate will focus, and battle lines will be drawn, in the years ahead.
Noonan began proceedings by reflecting on Ireland’s global position in taxation policy, pointing to a commitment to reform that has often put it ahead of its EU counterparts. He noted the role the country had played in the introduction of the Organisation for Economic Cooperation and Development’s (OECD) inclusive framework on Base Erosion and Profit Shifting (BEPS).
‘BEPS is now being implemented around the world and Ireland will play a full part in this,’ he said. ‘We introduced country-by-country reporting in 2015, which many countries have since followed.’
Turning to the EU Commission’s relaunch of proposals for CCCTB, he said there were interesting ideas in the areas of tax relief for R&D and equity investments, but pointed to several difficulties with the tax harmonisation proposals. ‘CCCTB would require Ireland to choose one corporate rate and to lose flexibility. We would have to choose the same rate for corporate traded and non-traded activity, and that gives me serious difficulties.’
He also voiced his concern that CCCTB would result in an overall fall in corporate tax income for Ireland, which would have to be counterbalanced by other taxes. Also of concern to him were ‘signals that some of the EU Commission’s thinking will be contrary to the OECD’s. One of our strong arguments is that whatever the EU follows has to be consistent with what the OECD proposes. Avoidance practices are what we want to get rid of and that can only be done by one set of international rules.’
On the area of US tax policy, the minister said: ‘Anything I have heard from Washington doesn’t give me concern about the flow of foreign direct investment into Ireland’. Regarding Brexit, his view was that ‘if anything, the impetus to invest in Ireland has been reinforced.’
Commissioner Moscovici began by telling the summit that the sense of confrontation suggested by its theme ‘Ireland vs the world’ was a ‘nonsense’ and that ‘Ireland has been a constructive player in this field in recent years. We are not in a situation of conflict, even if there are specifics in which we disagree.’
Regarding the current EU Commission’s commitment to corporate tax reform, he said that ‘more has been achieved over the last two years than over the last two decades’.
He recognised that national tax sovereignty is ‘a very sensitive issue for Ireland’, but added that Ireland had no cause for concern with regard to the introduction of the CCCTB, which would be good for growth both for the EU and Ireland ‘because it is business friendly to its core. It can make this country an even more appealing place to do business.’
He said that the corporate tax rate that will apply would remain a national issue under CCCTB: ‘We fully respect the right of Ireland to fix its own corporate tax rate. This is not about removing Ireland’s sovereign ability to do so.’
The commissioner concluded that work between the EU Commission and Ireland would continue in a spirit of cooperation: ‘We want Ireland to keep on succeeding because it is a condition for Europe’s success.’
Speakers from industry at the summit included: Joe Tynan, leader of PwC Ireland’s tax practice; Cora O’Brien, tax policy director with the Irish Tax Institute; Pam Olsen, US deputy tax leader, PwC; and Feargal O’Rourke, managing partner, PwC Ireland.
Tynan noted that, while there were many perceived threats to the Irish economy, it was important that we ‘take a step back from these threats and see them in a different perspective’. He reminded the audience that in the four key areas relevant to starting and growing a business – market access, availability of people, track record and ROI – Ireland would continue to perform very strongly in the Brexit/Trump presidency world.
O’Brien also spoke about the changes ahead, and the challenges and opportunities they present. Acknowledging that there were ‘a large number of moving parts in the environment at the minute’, she noted that while a post-Brexit UK would have more flexibility in its tax rules, it would still be required to abide by BEPS principles and could face countermeasures from the EU for any aggressive changes to its tax policy. She also stressed the need for perspective: ‘Everyone globally is going to have challenges. It is not just Ireland responding to this new world order.’
Olsen, meanwhile, said ongoing tax discussions at a global level were critically important and that the OECD was the best place for that. She pointed to the reduction of corporate rates as a global theme, with the US as something of an outlier. Its corporate tax rate is now 50% above the OECD average. In his first days in office, ‘President Trump has laid out an ambitious agenda and tax reform is high on his list. This talk about tax reform has made business optimistic about change,’ she observed.
O’Rourke observed that tax policy had been instrumental in bringing Ireland to the forefront of global economic development, and said the country had to continue to be nimble and adapt constantly. ‘Ireland has played a turbulent losing hand well over the last few years,’ he commented.
On the issue of the Apple tax ruling, he described the idea of the EU putting rules to one side as ‘an appalling vista’, adding his belief, regarding the impending appeal by the Irish government, that ‘when a court takes a non-political decision, Ireland will win hands down’.
The Irish Times journalists speaking at the event included business editor Cliff Taylor, columnist Fintan O’Toole, and newly appointed Washington correspondent Suzanne Lynch.
Taylor noted that much of the impetus driving the reform of corporation tax in the US and EU was the sea change of public opinion and anger at the realisation that many large companies were paying almost no tax.
O’Toole argued that Ireland can no longer afford to be perceived as a tax haven by the rest of the world: ‘Ireland’s appeal of the Apple tax ruling makes us perceived internationally as willing to defend the indefensible.’ Acknowledging that now was not the time for Ireland to move away from the 12.5% corporate tax rate, he said the country needed to ‘move away from a model with tax competitiveness at its heart’.
O’Toole pointed to five enormous assets the country has at its disposal: culture, education, place, politics and being European. Reflecting on Brexit, he added it was clear that ‘the gravitational pull of the EU project is going to be significant. I’m not sure we are quite ready for that.’
As a former Brussels correspondent for The Irish Times, Lynch also addressed the Apple ruling and explained that it had been a huge international story, as well as representing a major PR initiative by the EU Commission. ‘Undoubtedly, Ireland has a very negative reputation on tax. We are getting increasingly isolated on this issue,’ she said. Lynch also pointed to the danger of underestimating the real scepticism about the Irish position on the continent. ‘In parallel with taxation, the EU is also regulating on data protection. There is no sympathy for companies like Google and Facebook there, while our attitude is very different.’
Echoing Taylor’s comments about public attitudes to corporation tax, Lynch noted that, for the EU, ‘the fight against tax avoidance is seen as a winner. If the EU feels it’s on to something and is chiming with the public mood, that is a sign of things to come.’
Donal Nugent, journalist
"Anything I have heard from Washington doesn't give me concern about the flow of foreign direct investment into Ireland"