The unveiling, this week, of the EU’s controversial digital turnover tax proposal is “crunch time”, as experts warn about the outsized hit Ireland will take from the levy on the digital giants such as Google, Facebook, and Apple.
Backed by the large countries, including France and Germany, the Commission will unveil what is widely expected to be a 3% tax on the turnover, not the profits, which the online giants generate in individual EU markets. Because the turnover generated in the populous countries, like France and Germany, is enormous, any such tax would lower the reported profits the online giants report in Ireland, where most have based their European operations.
Ireland’s lure of its corporate tax regime has been strengthened, not weakened, by the international row, in recent years, over multinationals paying little or no tax. Arrangements such as Apple and other US giants regularising their global tax affairs, by transferring intellectual property rights, have rapidly boosted Irish corporate tax revenues.
The top-10 largest corporate taxpayers to the Irish exchequer are all multinationals and account for four-fifths of the €8bn paid into the coffers in profit taxes last year.
Now, some of the big European countries appear to be turning their backs on the agreed method of addressing global tax issues, through the Organisation for Economic Co-operation and Development, the OECD, which has served Ireland well. That has sparked fears the Commission will use the digital tax as a staging post to usher in its long-sought, common consolidated corporate tax base, which would likely damage Irish prosperity, said Brian Keegan, director of public policy and taxation, at Accountants Ireland.
Likening the digital tax to an excise duty, Mr Keegan said the EU is trying to tax where the market is rather than based on the location of the company. That raises Irish fears that what the Commission describes as “an interim measure” will lead, in time, to worse measures and the undermining of parts of Ireland’s competitive tax advantages.
Davy chief economist, Conall Mac Coille, said it was “crunch time” for the EU digital tax plans.
Joe Tynan, head of tax at PwC, said some of the larger European countries contend they are getting little out of the digital giants and that their huge European markets boost the value of the US online giants, which individual countries do not harvest.
He said, in the past year, the story of global tax reforms has changed since US president, Donald Trump, raised the spectre of trade wars with the EU. His US tax reforms have led to US global giants paying, effectively, around 12% or 13% of their global taxes to the US.
The view of some of the big European countries has evolved from wanting the online giants to pay in the EU “to wanting them to pay tax in their [individual] countries”, Mr Tynan said.
He said that what has been left out of the changing debate is that multinationals now have to pay tax in the US, and the some EU countries fear, more than ever, they are losing out.
“Ireland’s position is that it (digital) is a very crude tax. It is a tax on revenue and will lose the Irish exchequer money,” he said.
Another downside, from an Irish perspective, is that the tax can be deducted as a charge, which will further diminish profits reported in Ireland.