Plan to tax corporate profits in producer states dropped

The silicone docklands look to have dodged EU efforts to tax the digital economy as the expert group on taxation ditched the idea of taxing companies’ profits based on where their products are consumed.

The Taxation of the Digital Economy report, published yesterday by the high level expert group of the European Commission, recommended that Vat be applied at the point of consumption, but not that companies pay their corporate tax in jurisdictions where their products are used.

“The group welcomes the consensus that the destination principle — taxation at the place of consumption — is the way forward for Vat,” the report stated.

Partner in the Tax Department in Grant Thornton, Peter Vale, said that Ireland could have seen its attractive 12.5% corporate tax rate rendered useless if the EU had decided to tax profits where companies sell their products.

“Perhaps the most important aspect of today’s report from an Irish perspective is the move away from attributing taxable profits based on customer location.

“Taxing companies based on the location of their customers could have had adverse consequence for a small export-oriented country such as Ireland. It would have significantly reduced the attractiveness of our 12.5% tax rate,” he said.

The expert group did acknowledge that there is a need to react to the changing business landscape.

“…There is a perception that some multinational companies are in a position to avoid or circumvent taxation.

“That is a main motivation for the project on Base Erosion and Profit Shifting which is being conducted under the aegis of the OECD.

“Given the nature of changes in the business environment and the political priority for immediate action at international level, the process of adapting international rules should be evolutionary in nature to achieve the best chance of success,” the report stated.