By Gerard Brady, Chief Economist
New proposals by the OECD / G20 on global tax reform, published at the end of May 2019, if implemented would represent the most fundamental change in global corporate tax policy in over a century.
This is not a statement Ibec makes lightly. But there is now concern that one of the proposals for a minimum effective global corporate tax rate could pose significant challenges for Ireland’s Foreign Direct Investment (FDI) model.
How did we get here and what exactly lies ahead for Ireland?
The BEPS process began in 2013 with the first BEPS package agreed in 2015. Over 115 countries and jurisdictions have now joined the process. So far changes have been implemented in 83 countries and 1,400 tax treaties through a multilateral instrument. Many of the measures at a European and Irish level are part of the EU's Anti-Tax Avoidance Directive and will take effect from 2019 onward into the early 2020s.
The work at OECD/G20 level is not complete, however. There is now clear renewed political momentum behind global multilateral tax reform through the process known colloquially as BEPS2.
The recent publication of the BEPS2 roadmap from the OECD/G20 is a significant step. It focuses on the allocation of tax bases between countries and a potential for a global minimum effective corporate tax rate. Both will be significant for Ireland from an industrial policy standpoint. These proposals, if adopted, would take effect over the course of the next decade. Agreement will require a majority and some countries may implement the proposals unilaterally if there is no agreement in Paris. In contrast to previous efforts at global tax reform these most recent proposals have strong political backing from all major countries including the US, Germany, and China. Ireland has no veto.
Proposals under Pillar 1 will mean some re-allocation of taxing rights to larger importing countries and, as a small exporting country, may mean the Irish exchequer will lose a proportion of its corporate tax base.
Irish business, however, is more concerned about proposals under Pillar 2 which would introduce a minimum effective corporate tax rate globally. It is crucial for small open economies that this rate, if introduced, is set at a level which focuses on addressing actual profit shifting concerns and does not infringe on our right to set competitive tax rates. These proposals are gaining significant momentum amongst the G20 and many of our traditional allies on tax issues.
Ibec, as the only Irish representative at BIAC (Business at the OECD), will continue to voice Irish business interests on these issues. Although we are early in the process, it is now highly likely that significant change is coming to how companies are taxed globally.
The Irish Government will need to react proactively by significantly strengthening other areas of our FDI regime. This will require significant investments in areas such as education, innovation, and quality of life which we have failed to make over recent years.
Pictured is Secretary General of the OECD, Angel Gurria, speaking at an Ibec event in March 2018.