By Padraic Halpin
DUBLIN (Reuters) – Ireland must be open to considering a broader concept of how companies are taxed in the modern digitalised world, Finance Minister Paschal Donohoe said on Thursday, setting out his country’s stall in a debate that is key to its economy.
The growth of internet giants such as Google, Facebook and Amazon has pushed international tax rules to the limit, prompting the Organisation for Economic Cooperation and Development (OECD) to pursue global reforms.
The debate centres around the booking of profits by multinational firms in low-tax countries such as Ireland where they have bases rather than where most of their customers are.
In Ireland, where Apple, Facebook and Google all have their European headquarters, multinational companies make up around 10 percent of the country’s entire workforce. They benefit from Ireland’s corporate tax rate of just 12.5 percent.
“It remains my belief that corporate tax should be paid where value is created,” Donohoe said in a speech, referring to what he described as long-standing international tax policy that tax be levied where value and substance, or intellectual property, is located.
“We must be open however to considering and developing a broader concept of value creation which recognises that some value may arise from scale, from brands or from access to markets.”
“Change is coming to the international tax system and Ireland’s engagement with this work must reflect this reality.”
Donohoe said any such changes must ensure that the bulk of profits remain taxable in exporting countries under the existing framework and do not disproportionately benefit large countries at the expense of smaller ones.
To that end, he stated Ireland’s firm opposition to the idea of a minimum effective corporate tax that the OECD has agreed to look at, which would give countries more leeway to tax revenue booked in other countries with no or low tax.
The minimum taxation measures being pushed by Germany and France have “as their core objective the end of legitimate and fair tax competition,” Donohoe said.
He also warned that moves by France and others to push ahead with their own plans for national taxes targeting mostly U.S.-based digital firms were unwise and “highly likely to exacerbate global trade tensions and damage cross-border trade and investment.”
PWC Ireland Managing Partner Feargal O’Rourke, who has advised a number of major U.S. companies with operations in Ireland, said on Twitter that Donohoe’s speech was “probably the most substantial Irish tax policy speech for the last 30 years.”
Speaking to the Irish Times this week, O’Rourke said most countries accepted the principle that companies would have to pay some profits’ tax in the country of sale or consumption and were now “haggling over the price.”
“No matter what happens we’re going to lose tax (revenue) as a result of this OECD initiative,” O’Rourke said, referring to Ireland’s corporate tax take which has more than doubled in recent years, mainly as a result of multinational activity.
“The extent to which profit has to be left in these countries of consumption is in effect a direct transfer of taxable profits from Ireland to that country.”
(Additional reporting by Conor Humphries; Editing by Susan Fenton)