The EU’s tax chief has appealed for a “serene” response from Ireland on the bloc’s latest corporate tax overhaul, saying he’s not out to harm the country’s business model.
Speaking to the Irish Examiner, Pierre Moscovici, the commissioner for economic and financial affairs, taxation and customs, said Ireland was shaking off its “previous reputation” in the EU, where the tax regime has not always been viewed positively.
The European Commission earlier this week provided more details of what it calls a common consolidated corporate tax base, a fundamental change to how company taxes are calculated and paid across the EU.
While it does not affect the 12.5% corporate tax rate, there are fears it could eat into Ireland’s tax revenues and create a parallel regime for larger multinationals.
“I understand the sensitivity of the Irish Government but I think that we need to discuss that in a smooth way, a serene way, a constructive way,” Mr Moscovici said in the interview.
“Ireland has made considerable progress towards a tax governance which is more transparent and tried to move away from a previous reputation, and is really in the right place,” he said.
The proposals come soon after the Commission’s finding that Apple enjoyed illegal tax breaks amounting to €13bn in Ireland, largely by booking its sales through two Irish shell companies that were not tax resident in the country.
“What we want to do is create a framework which prevents future Apple cases, and it’s in the interest of all countries, including Ireland, to go in that direction,” Mr Moscovici said.
The EU’s new proposals, if fully applied, would prevent so-called profit-shifting because corporate taxes would be due where companies have their sales, assets and labour.
The definition of assets excludes intangibles such as intellectual property rights, which account for a big chunk of Ireland’s GDP.
That means multinational profits that were once due in Ireland might, in future, be shifted elsewhere in Europe.
“Yes, our tax rate will remain untouched, but it is clear that tax sovereignty will be eroded, with member states handing over new powers to the Commission,” said Independent MEP Marian Harkin.
In an impact assessment, the Commission estimates Ireland’s multinational corporate tax revenues could be reduced by -0.14% of GDP once the new tax regime is fully implemented.
“My commitments to the Irish Government and to Michael Noonan are very clear and I repeat that, again, this proposal aims for more clarity, more transparency, more efficiency, more fairness,” Mr Moscovici said.
“It doesn’t aim to hurt the attractiveness or the competitiveness of any country,” he added. However, that may not happen for some time, as the Commission plans to implement the new tax scheme into two stages.
First, it will ask EU countries to agree on new rules to calculate corporate taxes, and only afterward discuss where those taxes should be paid.
This element is known as “consolidation”.
The two-step approach was suggested by Ireland in 2013, during talks on a previous draft of the CCCTB.
Mr Moscovici believes it will give the scheme a greater chance of success this time around.
The 2016 version is mandatory for all large companies with global revenues over €750m.
The plan should therefore benefit smaller firms who felt they were shouldering massive tax burdens, while their large competitors could shop around the EU for the best deals.
The Commission is also pointing to a new research and development (R&D) super-deduction of 50%.
It says they say the R&D tax incentive makes the proposal more business-friendly.
The rules require the unanimous approval of all 28 EU countries, several of whom are likely to raise objections alongside Ireland.
“I think there is a reasonable basis for consensus if there is not too much ideology in the reactions here or there,” Mr Moscovici said.
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