OECD tax reforms enter crucial phase
By Gerard Brady, Chief Economist
Ibec continues to play an active role in representing Irish business in the ongoing process of international corporate tax reform at the OECD.
In our submission to the OECD’s Pillar 1 of the Base Erosion and Profit Shifting (BEPS) programme (new rules defining where companies should pay tax), we outlined our view that there is likely to be a narrow path to a solution on these issues at a global level. There is significant potential for the process to create winners and losers. On the other hand, the proposals must be adopted affirmatively by consensus if the OECD's BEPS process is to retain widespread support. That narrow path means that proposals cannot unduly disadvantage small open economies, must be grounded in the concept of value creation, and must be administrable.
If properly implemented, it could put an end to damaging tax uncertainty globally and ultimately result in a more stable global tax environment. This, in turn, would benefit the global business environment.
On the other hand, our submission on the proposals for a minimum effective corporate tax rate (Pillar 2) outlined our reasoning as to why we think this direction of travel was ill-judged. The proposals as they stand go much further than just addressing profit shifting concerns and would impact significantly on genuine investment decisions and the economic activity of companies. They would also materially alter the ability of countries to set their own tax rates despite all evidence pointing to countries collecting as much revenue from corporate taxes as they have at any period in the past 50 years. If such a minimum tax rate is to be introduced, we argued that it must respect the rights of countries to set their own tax rates by not setting a new minimum tax rate which undermines the effectiveness of nationally set statutory rates.
We also argued that it must be based on a global blended tax rate, be targeted on wholly artificial arrangements only, include carve-outs for tax incentives which are compliant with BEPS Action 5 (such as the R&D tax credit), and be cognisant of the various legal protections for freedom of establishment and free movement of capital.
Further movement on the proposals is expected before the end of January 2020, with an ambitious timeline to arrive at a final global agreement by the end of next year. Ibec will continue to play a leading role in representing members’ interests on these issues in Paris at both the OECD and as the sole Irish representative at Business at the OECD (BIAC).