Written answers

Tuesday, 9 November 2021

Photo of Peadar TóibínPeadar Tóibín (Meath West, Aontú)
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113. To ask the Minister for Finance if his Department has made projections in relation to the expected change in corporation tax receipts. [54432/21]

Photo of Paschal DonohoePaschal Donohoe (Dublin Central, Fine Gael)
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I am taking it that this question has been tabled in the context of Ireland joining 135 other member jurisdictions of the OECD/G20 Inclusive Framework in reaching a high level agreement on a two-pillar solution to address tax challenges arising from the digitilisation of the economy.

There are two pillars to the OECD agreement. Pillar One will see a reallocation of a proportion of profits to the jurisdiction of the consumer. This means that, in effect, corporate tax revenue streams which now flow to the Irish Exchequer will flow to the Exchequers of other countries when implemented. Pillar Two will see the adoption of a new global minimum effective tax rate of 15% applying to multinational companies (MNEs) with global revenues in excess of €750m.

My Department and the Revenue Commissioners has estimated that the cost of the agreement could be up to €2 billion annually when both pillars come into effect. This figure is included in the Stability Programme Update, the Summer Economic Statement (SES), and in the medium term forecast included in Budget 2022. Estimating the cost is an extremely challenging exercise, both in terms of timing and magnitude. For the purpose of calibrating this medium-term forecast, the impact of international tax reform is very tentatively estimated – in terms of revenue foregone – at €2 billion relative to baseline by 2025; the revenue impact is phased in from 2023.

In respect to the exercise to estimate the cost of the agreement, it is important to note that there have been significant changes in recent months to the original proposals, both in relation to Pillar One, in which there is now a higher re-allocation than was originally foreseen, and on Pillar Two through the adoption of a 15% minimum rate as well as the introduction of substance based carve-outs based on the carrying value of assets and payroll. The substance based carve-out is expected to offer relief to taxpayers from the minimum effective rate but this is difficult to estimate as it will be firm specific. Indeed, predicting how individual companies may react to a potential new tax regime is very difficult.

It should also be stressed that while there is now a broad high level agreement in place on the main features of a solution, discussions are continuing and will continue into 2022 on how the agreement will be implemented in practice. For instance, the discussions on Pillar One will need to examine the rules in respect to reallocation from entities within a group. Further, it remains to be seen what additional tax will be paid by MNEs under Pillar Two when substance based carve-out rules are applied which can reduce the effective tax rate paid by an MNE. In terms of further complexity, the final agreement on these carve-outs include a 10 year transition period where the carve-out percentage is reduced year-on-year.

A further consideration is that although there are two pillars to this Agreement, it is important to understand that they are intended as integral parts of a single agreed solution. How they interact and the degree to which this interaction influences business behaviour is very difficult to predict.

For all these reasons, I do not believe that I yet have sufficient grounds to revise the working estimate of a potential annual cost of up to €2 billion that I have used in assessing the potential impact of the agreement on the public finances.

As technical discussions on the implementation framework continue, officials from my Department and from Revenue will keep the position under review and, when and if necessary, my Department will provide an update on how the agreement is expected to impact the public finances.

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