Thursday, 16 December 2021
Department of Finance
267. To ask the Minister for Finance the extent to which international increases in taxation with particular reference to the 12.5% corporations profits tax is likely to affect the economy in the future; and if he will make a statement on the matter. [62737/21]
268. To ask the Minister for Finance if foreign direct investment has been affected one way or another by the change in corporation profits taxes; and if he will make a statement on the matter. [62738/21]
I propose to take Questions Nos. 267 and 268 together.
I take it that your questions relate to Ireland joining the 8 October OECD/G20 Inclusive Framework agreement to address tax challenges arising from the digitalisation 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 per cent applying to multinational companies (MNEs) with global revenues in excess of €750m.
It is important to recognise that Ireland’s corporation tax rate of 12.5 per cent will remain for the vast majority of Irish businesses. The threshold that will apply to the 15 per cent minimum effective tax rate is €750 million annual global turnover. Thus, the vast majority of companies in Ireland - over 95 per cent - will not be subject to these new rules, and will continue to be subject to corporation tax at a headline rate of 12.5 per cent.
At a superficial level, the application of a minimum tax rate of 15 per cent under Pillar Two could provide some uplift to domestic corporation tax revenues. However, this would be a static assumption which does not take account of how firms react to a new tax regime, or to potential changes in tax regimes in other jurisdictions i.e. changes to the tax base. Further, any uplift on Pillar Two would be countered by the potential cost of Pillar One. That cost remains highly uncertain as its technical implementation is still far from resolved.
My Department and the Revenue Commissioners previously estimated that the cost of the OECD agreement on a new tax framework to address the tax challenges of digitalisation could be up to €2 billion annually when both pillars come into effect. However, as I have stated previously, this is an extremely challenging exercise, both in terms of timing and magnitude. 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.
It should also be stressed that what we have at the moment is a broad high level agreement on the main features of a solution. Discussions are continuing and will continue into 2022 on how the agreement will be implemented in practice. 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. The Agreement is planned to come into effect from 2023.
An historic agreement such as this presents challenges to all countries, including Ireland. However, I believe that I have safeguarded Ireland's interests and I am confident that Ireland will remain competitive into the future, and we will remain an attractive location and ‘best in class’ when multinationals look to investment locations. My commitment, and that of the Irish Government, remains clear – we will ensure that Ireland’s corporation tax regime will remain competitive, fair and sustainable. Ireland will continue to have an attractive tax offering, and we will keep and continue to create many good jobs.