Ms Cora O'Brien:

The Irish Tax Institute has a number of concerns about the proposals. The EU would be moving unilaterally, rather than in co-ordination with the rest of the world, which could create protracted tax disputes, both among countries and between countries and companies. EU companies could be adversely impacted if other non-EU countries apply similar levies in response thereby impacting the EU’s competitiveness. Any measure that is a bridge to CCCTB creates concern about the loss of tax sovereignty. Temporary taxes that deliver funds for certain countries could be hard to remove, disruptive and become a permanent levy on doing business in the EU. Legal challenges could be brought against the proposals under several headings: on the grounds of discrimination for having a special tax regime only for digital companies; on the grounds of proportionality; and on the grounds that this is another turnover tax and therefore incompatible with EU law.

Any new framework for taxation in a digital environment should not create double taxation for companies. However, double taxation will arise with a short-term levy that is not creditable. The EU approach is likely to trigger the need for EU countries to renegotiate their treaties with third countries. The interim measure will continue to apply with third countries in circumstances where the tax treaty has not been updated to reflect the new rules for the significant digital presence, the proposed long-term solution. Third countries such as the US and China may not agree to renegotiate a new treaty that could potentially lead to a shift in tax base to another country and in this way the levy can become permanent.

There has been no impact assessment by the EU of the proposals for individual member states such as Ireland. One of the most important policy principles of a new tax is that it is easily administrable. A 3% annual pan-EU levy raises a number of challenges for tax administrations. Reports from the recent informal meeting of the Economic and Financial Affairs Council, ECOFIN, indicate growing concerns and opposition to the EU interim measure, with preferences being strongly expressed for a long-term, global solution. Concerns are emerging from both small and larger EU member states. Ángel Gurría, Secretary General of the OECD, who attended the ECOFIN meeting, said work for global reform, which would include the United States, Japan and China, was already under way and cautioned against adopting measures that could be inconsistent with a long-term solution. Mr. Gurría, when he spoke about the project in Dublin in March of this year stressed that we are not talking about a company or a few companies. We are talking about how one taxes an increasingly digitalised economy in the world. Reports from the Asia-Europe Finance Ministers' meeting last week highlight that China, the world’s second largest economy with 19% of the world’s population, also supports a global approach to digital tax and opposes the EU interim measure.

While we accept that the challenges of taxing the digital economy must be addressed, we believe that when it comes to international corporate tax, a global system founded upon international agreement is critical. What the EU is proposing is a unilateral, regional measure in respect of something that requires a global response. It is important to have the same rule book for all countries. Global tax policy must be principles based. It must be durable and adaptable to the constantly changing nature of the digital economy. Measures introduced today could be quickly superseded by further digital evolution. This is a very complex undertaking and it requires a global solution.