Ireland faces new threat to 12.5% corporate tax on two fronts

The European Commission is proposing a new form of a common tax base that has long been bitterly opposed by Ireland. 

The European Commission has set out its stall on the overhaul of corporate tax — proposing to go even further with a new form of a common tax base that has long been bitterly opposed by Ireland. 

In a 14-page document, Business Taxation for the 21st Century, which was prepared for the European Parliament, the commission has proposed going beyond the current global initiatives that have anchored Irish prosperity for the past three decades. 

Specifically, it said it wants to go beyond the reforms planned by the Organisation for Economic Co-operation and Development, the OECD, and seek what it calls a Business in Europe Framework for Income Taxation, or Befit. This plan appears in many ways to set the groundwork for its existing plan for a common consolidated tax base.      

'Drag on competitiveness'

"The lack of a corporate tax system in the single market acts as a drag on competitiveness," the commission told the European Parliament. 

"Befit will be a single corporate tax rulebook for the EU, based on the key features of a common tax base and the allocation of profits between member states based on a formula," it said in the document.

It proposes to consolidate "the profits of the EU members of a multinational group into a single tax base, which will then be allocated to member states using a formula, to be taxed at national corporate tax income tax rates".

The Irish Government has co-operated with the OECD process of reforming global tax and has acknowledged it will lose up to €2bn a year in corporate tax revenues under the OECD plan. 

However, the State has long opposed the previous commission's plans for an EU-wide consolidated tax base. It has also become increasingly reliant on large corporates to pay for its spending programmes. 

Last year, the exchequer collected €11.8bn in corporate tax revenues, of which the lion's share was accounted for by a handful of US multinationals.  

Biden plan

The existing plans for global tax reform were given a major push after US president Joe Biden came on board in recent weeks. 

The sting for Ireland in the Biden plan is his proposal to raise the Trump-era minimum tax rate on earnings generated overseas by US companies to 21%.

The higher the US minimum rate goes beyond Ireland’s 12.5%, the less potent the lure for US corporates to drop future investments into Ireland — as opposed to, say, investing in France or Germany.

The EU plan means that Ireland faces threats to its corporate tax regime on two fronts.