With the OECD newly releasing its proposals for an overhaul to international tax rules, Ireland's Finance Minister Paschal Donohoe has said a stable and consensus-based solution is preferable to several nations staking a claim to the same income with their own unilateral taxes. Donohoe has underscored, however, Ireland will fight for its right to offer a competitive tax environment.
The OECD's Tax Plans
In May 2019 the BEPS Inclusive Framework agreed on a Program of Work to address tax challenges arising from the digitalisation of the economy. The OECD has now launched two consultations on its proposals.
Essentially the OECD has proposed that new rules be introduced so that market economy jurisdictions have more rights to tax income derived from sales to businesses and individual consumers in their territory.
Meanwhile, it also proposes that income should be subject to at least a minimum level of tax wherever that may be.
Countries have yet to decide what that minimum tax burden should be, or the rules for dividing up the right to tax multinational profits.
The Irish Position
Donohoe has discussed these plans and their impact on Ireland at length while speaking at a number of recent tax conferences.
In his speech at Grant Thornton's European Tax Conference on 24 October Donohoe said the international tax landscape is:
"in a state of flux"
and that the OECD's BEPS project will result in
changes that will impact small trading economies in particular.
He said that, if the work is successful, there could be:
"changes in how highly profitable, highly digitalised companies are taxed."
However, if the project fails, there is likely to be:
"a proliferation of unilateral taxes, double taxation, and trade disputes."
Donohoe said that:
"as digital technologies change traditional value chains and business models, it is only logical that the rules adapt to reflect this changing reality."
and that there is potential for a
"globally acceptable consensus solution”
on new rules to allocate the right to tax multinationals' income but stressed that any changes must adhere to a number of well-established principles.
He said that existing transfer pricing rules should:
"remain at the heart of the global tax framework"
"the significant and substantial value-creating activity that happens in exporting countries like Ireland must continue to be recognised and rewarded."
At the end of 2018, around €1 in €5 collected in tax was paid by the corporate sector, with around 45% of all corporate tax receipts paid by just 10 firms. Receipts for 2019 are projected at around €10bn, nearly double the €4.6bn collected in 2014.
Donohoe acknowledged the potential impact of global tax reform on Irish tax revenues and said that the Irish Government will continue to broaden the tax base and reduce debt, with the aim of ensuring it is able to deal with:
At the PwC-Irish Times Tax Summit, held in September 2019, Donohoe emphasised that it is:
"in Ireland's interest that this work is successful at ensuring the continuance of a stable and consensus-based international tax framework."
He said that while companies must pay their fair share of tax, it is essential that:
"any lasting solution to the digitalisation of the economy must not come at the expense of fair and legitimate competition."
According to Donohoe:
"fair tax competition is a vital tool to ensure that smaller countries can compete against the size, geographical location, or resource advantages other countries may enjoy."
He said his priority in the BEPS talks will be to ensure that Ireland's
"interests are central to the process of forming that globally agreed consensus."