Martin Heydon (Kildare South, Fine Gael) | Oireachtas source

I thank the Senator for raising this important matter relating to an online advertising tax, which I am taking on behalf of the Minister for Finance. I understand that the Senator is referring to a tax in the same vein as a digital tax, which has been the subject of discussions in the area of international taxation over recent years. It is the long-held view of the Government that to ensure there is a level playing field between the traditional bricks-and-mortar economy and the digital economy, it is important the tax system evolve to cater for the digitisation of the economy. As this is a global issue, it is important there be a global solution.

The European Commission proposed a digital services tax, and separately a digital advertising tax, some years ago, which sought to impose a 3% levy on the turnover of certain companies’ digital activities. At the time, Ireland's concerns regarding the proposals arose from the suggested fundamental shift to taxing revenues rather than profits. It was our view a digital advertising tax proposal would do nothing to mitigate this and would serve only to target specific companies, heighten international trade tensions and potentially harm economic growth.

For these and other reasons, member states ultimately could not agree to the measures and instead sought to focus on finding a global solution to taxation issues in this area at the OECD. The OECD-G20 Inclusive Framework on base erosion and profit shifting, BEPS, met in October 2021 to agree a two-pillar solution to address tax challenges arising from the digitisation of the economy. Pillar 1, which is most relevant to what we are discussing here, will see a reallocation of 25% of residual profits to the jurisdiction of the consumer. Its scope is confined to multinational groups, MNEs, with a turnover in excess of €20 billion annually.

Ireland recognises that taxation issues are created by digitisation where profits can be made by MNEs without a taxable presence in jurisdictions. Pillar 1 seeks to address this issue by reallocating a portion of taxing rights to those jurisdictions to account for this digitisation. Therefore, Ireland signed up to the agreement recognising that the current rules, first agreed a century ago, must evolve to reflect how modern business operates. Pillar 1 will be implemented via a multilateral convention, on which work is well advanced at the OECD. It is anticipated this will be finalised by mid-year, with a signing ceremony scheduled for July. Once signed, the multilateral convention will be brought before the Oireachtas and debated as part of the legislative process, including in this Chamber.Once signed, the multilateral convention will be brought before the Oireachtas and debated as part of the legislative process, including in this Chamber.

Pillar 1 is comprised of amount A, which seeks to allocate a taxing right to market jurisdictions, and amount B, which seeks to simplify certain aspects of transfer pricing rules. Implementation of amount A will require all parties to remove all digital services taxes and other similar measures with respect to all companies, and commit to not introduce such measures in the future. Pillar 1 should address the same concerns that digital services taxes and digital advertising taxes are trying to address. It is important this ongoing process is allowed to continue without the added complexity that would be triggered through introduction of unilateral measures by individual jurisdictions, such as a digital advertising tax. There are, therefore, no current plans for the Government to introduce a digital advertising tax at this time, which may risk undermining Ireland’s position at the OECD and may ultimately need to be amended or withdrawn once that process concludes. lreland continues to participate actively at the OECD to ensure it is at the forefront of discussions on these important matters and ensure its tax system can adapt and evolve to meet the needs of the economy into the future.