The Commission’s plan to shake up the way corporate taxes are paid across the union is the greatest threat to Ireland’s economy which could cost the country half of its corporation tax base, the Oireachtas Finance Committee has heard.
University College Cork economist Seamus Coffey, who is also a member of the Irish Fiscal Advisory Council watchdog, told TDs and senators plans by president-elect Donald Trump to reform the US tax system was less of a threat than Brussels’ so-called Common Consolidated Corporate Tax Base - CCCTB.
With the Government collecting a large chunk of Ireland’s corporation taxes from exporters, Mr Coffey said Ireland could lose up to 50% of its current corporation tax base if the CCCTB was introduced.
Under Brussels’ CCCTB, there would likely be further knock-on consequences as companies adapted to the new pan-EU tax regime.
“At present, as well as around €3bn of corporation tax, US companies in Ireland pay €6bn of salary costs, undertake an average of €3bn of in fixed capital investment and buy around €3bn of goods and services from Irish suppliers,” he said.
Mr Coffey said that this amounted to a €15bn boost to the Irish economy each year. “It is hard to imagine any reform — even unilateral US tax reform — posing a greater threat to huge gains of Ireland’s most successful economic policy than the CCCTB.”
The Commission announced in October it was looking at overhauling the way in which companies are taxed in the Single Market, saying it wanted to deliver a growth-friendly and fair corporate tax system.
It said the CCCTB would create a level-playing field for multinationals in Europe by closing off avenues used for tax avoidance. The CCCTB would look to introduce a single rate, meaning Ireland’s 12.5% rate would be streamlined.
The Economic and Social Research Institute - ESRI -has said Irish corporation tax revenues would fall by about 5.5% if the CCCTB was implemented across the EU. Its report last week also estimated the CCCTB would eliminate 1.5% from Ireland’s economic output.
France, the ESRI report said, would be the biggest beneficiary if the CCCTB was introduced, increasing its corporation tax revenues by 6%.
Finance committee deputy chair Senator Gerry Horkan asked Mr Coffey if the proposed CCCTB was merely a “profit grab by bigger countries over smaller countries”. Mr Coffey replied he would not dispute that assertion.
Labour TD Sean Sherlock said he had serious concerns about the potential loss of sovereignty and that Ireland could not afford to do anything to compromise the ability to attract foreign direct investment.
Separately, the Oireachtas Budgetary Oversight Committee heard from the chairman of the Irish Fiscal Advisory Council, Professor John McHale, on the threats facing the Irish economy.
He said a big increase in expenditure and tax reductions by the Government went beyond what the watchdog had deemed prudent. It left Ireland more exposed to risks. He warned there was little room for any major increases such as public pay restoration and Ireland’s high gross debt needed to be brought down to safe levels.
He said: “The economy has seen recovery but fragilities remain.”
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