State knows corporate tax must be reformed

The Government is very aware the country’s corporate tax regime has to be changed, according to the economist who has drawn up a blueprint to plug tax loopholes for multinationals.

The biggest worldwide changes to taxation were unveiled in Moscow at a meeting of G20 finance ministers with the message that the golden era of companies not paying taxes is over.

The Organisation for Economic Cooperation and Development (OECD) plan aims to develop rules over the next two years to revolutionise the way companies pay tax in future — to prevent them taking advantage of systems such as Ireland’s to pay little or nothing in tax .

Among its targets are internet companies such as Google, Apple and Facebook which can use the lack of borders in the online world to make their money in some countries and shift profits to where they pay the least tax.

Pascal Saint-Amans, who drew up the groundbreaking action plan, praised the Irish Government for being “active, positive and constructive” over the past months. “They understand that with everything that is going on, it is not an option to leave the situation as it is,” he said.

All the actions in the blueprint will have an impact on Ireland, he said, but it would be better that the country is involved in the changes as he believes others will take action otherwise.

“If we do not fix the system there is a danger of unilateral defensive measures being taken that would affect Ireland and would kill the hybrid system that is being used by companies there,” he said.

Mr Saint-Amans believes that facilitating companies to pay little or no tax does not contribute to Ireland’s real economy.

“The contribution from these companies is in real business and that is why we need a competitive system that does not facilitate abuse — that is the message I got from the Irish Government and also from Netherlands,” he said.

The OECD report favours amalgamating the profits of a multi-national and sharing the profits for tax purposes among all the countries involved according to a formula on sale, assets and employees.

The next move will be to establish a task force to identify what is at stake and what has to be done, especially in relation to the digital economy. They also plan to prepare model treaties to neutralise hybrid systems — such as Ireland’s provisions — so that there will be no tax benefit to countries shifting profit to a low or tax-free jurisdiction.

The Department of Finance welcomed the report. Finance Minister Michael Noonan has repeatedly said changes were needed at an international level, not just an Irish level.

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