Government warned against acting unilaterally on tax

Ireland must not surrender its competitive tax position by moving unilaterally to change its corporation tax code, Fianna Fáil finance spokesman Michael McGrath has said.

His comments come amid reports the Department of Finance may move to close off tax loopholes like the "double Irish" in the budget on the back of concern over multinational tax avoidance.

In the wake of last week’s OECD report on Base Erosion and Profit Shifting (Beps), director of its centre for tax policy Pascal Saint-Amans said Ireland should move sooner rather than later to scrap the contentious scheme.

The scheme, used by multinationals operating here, including Google’s Irish arm, exploits differences between Irish law and other jurisdictions to avoid tax.

Nonetheless, Mr McGrath said changing the State’s tax code without putting in place the long-term reforms to improve Ireland’s competitiveness “could prove very costly”.

“Instead of jumping the gun at this stage we should honour our commitment to fully participate in the [BEPS]process while at the same time developing national strategies to retain our competitive positions.”

“While some commentators are claiming that unilateral action would enhance our reputation internationally we need to be cautious in how we approach the Beps process,” Mr McGrath said.

“The [OECD]report is not finalised and significant changes could yet be made. There are aspects in the recent report that we should be concerned about.”

“A move towards taxing profits in the country of final sale (for example for digital music sales) would be bad news for many software firms based here and would appear to conflict with the overall Beps aim of aligning the taxation of profits with the location of business substance,” he said.

Employers’ group Ibec last week came out in favour of taking pre-emptive action to eliminate anomalies in the State’s tax regime provided the changes are wrapped into a package of measures that promote inward investment.

In a statement today,however, the department said it would not comment on speculation about possible changes to the tax code in the upcoming budget.

However, it said the so-called “double Irish” scheme is not, nor ever was, part of the Irish corporation tax offering.

“It is just one example of the many international tax-planning arrangements which have been designed and developed by tax and legal advisers to take advantage of mismatches between the tax rules in two or more countries,” it said.

“Through Beps, the OECD is seeking to combat aggressive tax structures and is considering how international rules can be amended to ensure fair levels of taxation. Their proposals are seeking to encourage companies to align the amount of tax they pay with the amount of substantive operations,” it added.

The department said the State was playing its part in OECD process, and “we believe that it will result in opportunities for Ireland as the alignment of substance with a competitive rate of tax has been the cornerstone of our CT policy since the 1950s.”