Mr. Seamus Coffey:

This is not something I have studied in any great detail. Maybe as the proposals are fleshed out we might get to see what the countries envisage. One key difference is that it appears to be some sort of turnover tax rather than a profits tax. It may be another layer of taxation that is different to what is in force for profits at present. The legality of some of these proposals may be subject to question, especially for sales within the EU. Various EU directives prevent the charging of withholding taxes on flows between EU member states. Maybe the royalties directive could be changed. At present, withholding tax could not be charged on those transactions.

To what extent would it have an impact on Ireland? It could potentially be significant but it is very difficult to say. How does this relate to our overall corporation tax and corporation tax base? The information and communications technology companies do not make up the most substantial proportion of our corporate tax base. Far more important for us is the manufacturing sector. The foreign direct investment sector is the largest source of our tax base and the largest source of tax revenue. The largest individual sector that pays corporation tax is now the financial sector. The financial sector has surpassed manufacturing as the largest sector, with the ICT sector placed third.

I am unsure of the impact on or of the behavioural response of these companies. Currently, they have central trading companies set up in Ireland that operate their sales through all their various markets. Would a turnover tax along the lines suggested limit the impact of these? I am unsure how the companies would respond. It is an issue and something that we should be concerned about, but I would find it difficult to quantify the impact and to predict the behavioural response of the companies. At the outset I would question the legality, especially for intra-EU transactions, of introducing such turnover taxes. If there is agreement at EU level to change some of the directives, they could be implemented.