Barry Cowen (Laois-Offaly, Fianna Fail) | Oireachtas source

I thank the Minister for his presentation. My amendment No. 65 proposes to delete lines 7 to 26 on page 200. Whether that passes or not, it is important that we take time to debate and really understand the changes that are coming in two months and how Europe may well be out of step with the rest of the world. I know it is a highly technical issue but unfortunately it has a significant real-world impact that will felt first by European companies, then by European economies and in the end, by those employed by or connected to European firms. We have been bombarded in recent weeks by media commentary and analysis about the dwindling corporate taxation receipts in this country and our reliance on corporate investment and yet, here we stand to implement changes that threaten the funding stream for Ireland's hard-fought advantages in relation to enterprise, employment, education, innovation and prosperity, potentially creating a tsunami of negative implications which could set Ireland back in a way that it might not recover from.

The technicalities of how these Pillar 2 rules work have been debated for a long time. What we have not had time to debate and truly understand is what has changed in recent months. There is much talk of global agreement on tax changes but we must examine the global implementation of this agreement. Some would say it is not there. The timeline for implementation of Pillar 2 is not uniform. The EU, including Ireland, is jumping in first with implementation from 1 January next year. Due to a growing realisation that other jurisdictions may not be willing to follow this timeline, a compromise was agreed to exempt countries like the US for a period of up to two years. If we pause on that notion of compromise, what was actually agreed is that European countries would ensure not only that the 15% minimum tax rate would be brought in, but that all EU company profits from other low-tax jurisdictions would be subject to this minimum tax rate. Companies headquartered outside the EU can continue to avail of incentives from the US, EU and elsewhere that are not subject to taxation if it lowers their effective tax rate below 15%. They can continue to operate in countries with low to no corporate tax without necessarily being punished. There is an expectation that this compromise is temporary in nature and that in two years the world will be signed up but this does not necessarily reflect the view that this is dependent on the outcome of the US elections - both presidential and congressional - and the approval that might be required to secure the passage of global tax reform. Other major trading blocs have said that they will not move until the US moves.

Why are we following a plan that was agreed in different circumstances? Alignment with and participation in the EU is hugely important to Ireland but there are times when we need to use our own voice and question. Is the time and the global climate right to continue with this plan? We need to debate the practical implications of these rules and how differences in implementation timelines, or even no implementation, will create very significant financial distortions for EU-parented companies as against those companies parented outside the EU. It is this point that I would like to address. Without a delay to elements of the current EU directives, subsidiaries of EU-headquartered multinational groups will be subject to the income inclusion rule beginning in 2024. The current reality is that because two of the main global economic blocs, namely, the US and China, have not - and may not - implemented Pillar 2, the objective of creating a level playing field is completely undermined. On the contrary, it simply creates a two-tier system that puts EU-headquartered companies at a competitive disadvantage to their US- and China-headquartered counterparts. The situation is compounded by the fact that many jurisdictions will not implement the rules until 2025 at the earliest, including Switzerland, Australia, Singapore and Hong Kong, emboldened by the fact that the US and China may not implement them at all. The logical step for a US- or China-based multinational company to take would be to move its low-tax subsidiaries out from under the EU, to the US, for instance, where more favourable rules would allow them to maintain the benefit of these low-tax jurisdictions and create even more of an advantage for themselvesvis-à-vis EU-parented groups.

It is believed that the UTPR would operate as a backstop to tax these low-tax profits. However, this requires countries outside the EU to implement the UTPR and that certainly does not seem likely in the US, given the future political landscape that could be there. The Republicans have openly voiced their dislike of global tax reform and have stated that should they gain power, these rules may never be implemented. If the US does not implement the rules, then no-one else will implement them. Asking EU-parented groups to pay more tax than their competitors in the US, China and elsewhere, will necessitate a need to reduce costs for EU-parented groups. The quickest way to reduce these costs is to reduce jobs and cut investment programmes, both of which will have long-term implications for the EU and its competitiveness, as well as for Ireland. This behavioural response was not anticipated under the original Pillar 2 proposal as it was predicated on the vast bulk of the global economies being subject to these rules and implementing them at the same time. As this will not be the case, the Irish and EU approach to Pillar 2 needs to be reconsidered and implementation delayed until the US and China implement the rules. At the very minimum, a breathing space should be given to companies with EU operations, including EU-headquartered companies, to align the application rules within the EU to other implementing jurisdictions such as Singapore, Hong Kong and Switzerland.

In summary, Pillar 2 should be implemented in a manner consistent with its stated policy objective of ensuring that multinational groups are subject to at least a 15% minimum rate of tax in each jurisdiction where they operate. This requires that the Pillar 2 treatment of multinational companies and groups does not depend on where they are headquartered.

Now that two of the three major economic blocks in the world may not implement the 15% minimum tax, and since such a significant part of the world economy will not implement Pillar 2, the agreement could well lack coherence.

It follows that a change of approach is needed to prevent Irish and EU companies from being disadvantaged and to avoid an incentive to close EU and Irish operations.