EU reform plans ‘will hit Irish tax take’

EU plans for corporate tax reform would do little to tackle tax avoidance across Europe but would significantly reduce the state’s control over domestic tax issues, a senior civil servant has warned.

Rónán Hession, head of business tax at the Department of Finance, said that he doubted whether the proposals would be introduced because of the damaging implications they would have for a number of EU member states.

He told the Oireachtas finance committee yesterday that under the plans for a common consolidated corporate tax base (CCCTB), businesses would pay tax in proportion to their assets, employees and sales in each EU country. The proposals do not suggest that changes be made to individual countries’ tax rates.

Smaller countries such as Ireland would probably lose out on significant tax revenues because only about 10 per cent of Irish-based multinationals’ goods and services are sold into the Irish market.

The Economic and Social Research Institute has predicted that Ireland’s corporate tax revenues would take a 5.7 per cent hit if the CCCTB rules were introduced.

It is proposed that the rules would be mandatory for all companies with group revenues of more than €750 million.

This is one of the major changes from the previous set of proposals announced in 2011 which were blocked in part by Ireland.

Mr Hession said that making the rules mandatory would create two corporation tax systems in each member state, which would do little to reduce complexity in the application of business taxes.

The taoiseach has warned that the rules would mark the first step towards harmonisation of corporate tax rates, which Ireland strongly opposes.

However, the European Commission said that there would be a net benefit for the EU from the introduction of a simplified tax system and added that the framework would enhance Ireland’s competitiveness.

It also said that the proposals would act as a “powerful tool against tax avoidance”.

Mr Hession disputed the degree to which tax avoidance would be reduced.

“It’s hard to see where the momentum is going to come from for an agreement and essentially member states surrendering a significant portion of their [tax] base in service of an abstract principle, unless they felt there was some greater motive at stake, in this case that they felt it was necessary to really weed out tax avoidance and this was the only way to do it,” he said.

“What compromises that argument is that the anti-tax avoidance elements of this directive have already been agreed.”

Member states adopted an EU anti-tax avoidance directive in July, which they have until the end of December 2018 to transpose into national law.

Also addressing the Oireachtas finance committee yesterday, Bert Zuijdendorp and Uwe Ihli, two senior tax officials at the European Commission, said that the CCCTB plans would address the need for a fairer taxation system in a globally integrated economy.

They said that research carried out by the commission suggested that while Ireland would suffer a reduction in corporate tax receipts — equivalent to about €250 million based on this year’s anticipated corporate tax take of about €7 billion — this would be balanced by an increase in other taxes.

They said that when increases in labour, consumption and capital gains tax were accounted for there would be a net benefit to Ireland worth 0.2 per cent of the country’s GDP.

Mr Hession said he was unsure as to the accuracy of the commission’s analysis and that the government had not yet undertaken its own detailed analysis of the impact of CCCTB.

He said that the implementation of the plans would see a significant degree of decision-making on tax issues shift from Dublin to Brussels, however.

“A lot of the tax issues around these larger companies would not be discussed in this room at committee stage; they would be dealt with at European level. So in that sense the role of the Dail and Seanad would be reduced for those companies that are above the [€750 million] threshold or other companies that opt in.”

He said the net result would be that “a significant amount of tax policy would be decided at European level, albeit with Ireland at the table”.