Tax consolidation ‘would cost Ireland millions’

According to a think tank, Ireland can lose millions of euros annually if the EU implements its suggestion towards corporation tax for multinational companies.

The Economic and Social Research Institute (Esri) suggests that the ideas of the European Commission towards common consolidated corporate tax base (CCCTB) may end up benefiting large countries in expense of the smaller ones’ money.

The government doesn’t approve the suggestions that include universal rules used to calculate the tax bills of multinational companies in all the countries of the EU. The proposals also include a new splitting revenue system for all the members of the union.

So, companies’ corporation tax would depend on their employees, assets, and the capacity of sales. These suggestions aren’t meant to touch individual taxes of the countries.

Smaller economies like Ireland would lose a lot of money from their tax revenues if the suggestions are implemented. Considering the size of the country, the number of sold goods and services is lower comparing to larger countries.

About 90 per cent of what multinationals produce in Ireland is exported.

Enda Kenny has led government opposition to the changes, arguing that they represent the first step towards the harmonisation of corporate tax rates.

Martina Lawless, an associate research professor at Esri, said a common consolidated tax base would reduce Ireland’s corporation tax take by 5.7 per cent — the third greatest decrease of all member states behind Denmark and Netherlands.

Irish corporation tax receipts, which have come under renewed scrutiny because of the sharp increase recorded this year and last, totalled €6.9 billion in 2015.

Figures released by the Department of Finance last week showed corporation tax revenues running €991 million ahead of target to the end of November this year, with receipts of €7.06 billion to date.

With a number of repayments due in December, the department is forecasting corporate tax revenue for this year to be in the region of €7 billion.

Applying Esri’s forecasted 5.7 per cent reduction to the country’s estimated corporation tax receipts this year would reduce the state’s revenue by €399 million.

By comparison, French corporation tax revenue would increase by about 6 per cent.

Greece, Spain, Italy and Sweden stand to benefit from the introduction of CCCTB, according to Esri’s analysis.

“There is a negative shock of about 5.7 per cent [with the introduction of CCCTB]. The EU point out that the overall impact is broadly positive. There would be some incentive for FDI globally [to locate in the EU by] making this more simplified system available, but overall there’s a bit of a shift from small to large countries,” Ms Lawless said.

Using the think tank’s new forecasting model, known as Cosmo, foreign direct investment would also fall in Ireland by a far greater degree than most member states.

Of the 28 EU’s members only Bulgaria, Romania, Poland, Lithuania and Austria would suffer a greater falloff in investment.

Arthur Bingham
Arthur Bingham

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