Ireland’s corporate tax regime faces unprecedented challenges, starting tomorrow with a meeting of EU finance ministers that seeks to advance the cause of a common digital tax, while the shape of the overhaul in US tax code should become clearer after president Donald Trump’s legislative weekend success in the US Senate.
The Government has strongly objected to the plans for a European digital tax because it could in time undermine the tax regime that has lured so many US multinationals such as Google and Apple to set up huge bases here.
Over a dozen years, Irish policy has focused on fighting off proposals from the European Commission for a common consolidated corporate tax base that would weaken the incentives of the 12.5% headline rate and a whole range of special tax incentives for companies under Ireland’s corporate tax regime.
Plans for a digital tax are viewed as chipping away at the edifice of the tax incentives by Ireland and some other small EU countries.
Joe Tynan, head of tax at PwC, said that the big EU countries, including Germany and France, will be looking to push their vision of a European digital tax to tap the huge revenues generated by the huge US online technology companies in Europe.
However, he said the meeting of EU finance ministers seems to be more concerned with pushing a process led by the Organisation for Economic and Co-operation and Development and that any “bigger announcement” on the digital tax may be deferred to the Spring.
The big EU states have the large US online companies in their sights, but in shaping any digital tax, they face the difficulties of finding ways to protect European start-up businesses, said Mr Tynan.
Meanwhile, the White House will now lead the push for the early implementation of the US tax bill which the US Senate narrowly passed early Saturday morning.
Despite huge scepticism, it appears US tax cuts could apply by January 1, with immediate implications for all the firms, including the multinationals based here and Irish firms that have substantial investment projects in the US, said Mr Tynan.
Disputes about corporation tax between the EU and the US over US corporations in Europe, including the €13bn the European Commission has ruled Apple owes Ireland in back taxes, could be thrust back in the limelight, say analysts.
Mr Tynan said the US tax code will now have new incentives to encourage US firms to bring intellectual property onshore, which will in time add to the competition over future investment projects. He said the tax bill will unlikely lead to change in existing investments in Ireland but decisions over future investment decisions may be affected.
However, there is likely to be mixed news for large Irish firms which have significant investments in the US.
Mr Tynan said they will benefit from the US corporate rate reduction but could still be hit by other changes in the bill involving interest rate costs.
The White House is willing to consider a small increase on the corporate tax rate if it is needed to finalise the bill in the US Congress, White House budget chief Mick Mulvaney has said.
Mr Mulvaney made his comments after Mr Trump suggested on Saturday that the corporate tax rate could end up at 22% once the Senate and House of Representatives reconcile or “conference” their respective versions of the legislation, even though both bills currently stand at 20%.
“My understanding is that the Senate (bill) has a 20% rate now. The House has a 20% rate now. We’re happy with both of those numbers,” Mr Mulvaney said in an interview with CBS.
“If something small happens in conference that gets us across the finish line, we’ll look at it on a case-by-case basis. But I don’t think you’ll see any significant change in our position on the corporate taxes.”
Mr Mulvaney said.
On Saturday, the Senate voted 51-49 to approve a revised, 479-page bill that would cut the corporate tax rate to 20% from 35% in 2019, and would provide temporary tax cuts for individuals that expire in 2026.
Additional reporting by Reuters and Bloomberg