Thomas Gould (Cork North Central, Sinn Fein)
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21. To ask the Minister for Finance if he has considered a VAT reduction in retrofitting projects. [33141/22]

Paschal Donohoe (Dublin Central, Fine Gael)
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I am advised by Revenue that the VAT rating of goods and services is subject to EU VAT law, with which Irish VAT law must comply. In general, the Directive provides that all goods and services are liable to VAT at the standard rate unless they fall within Annex III of the Directive, in respect of which Member States may apply either one or two reduced rates of VAT. Ireland currently operates two reduced rates of VAT, 13.5% and 9%, as permitted by the Directive.

Building materials are not included in the categories of goods and services on which the EU Directive allows a lower rate of VAT or an exemption to be applied, and so they are liable to VAT at the standard rate. By way of special derogation from the general rule though, Ireland is permitted to continue its long-standing practice of applying a reduced rate, currently 13.5%, to the supply of ready-to-pour concrete and certain concrete blocks but there are strict restrictions on this derogation, including that the rate cannot be reduced below 12%. 

Under the EU VAT Directive the supply of construction services is liable to VAT at the standard rate generally across the EU but Ireland applies a 13.5% reduced rate of VAT to all construction services under a derogation from the EU VAT Directive, again subject to strict restrictions.

Construction services that consist of the “renovation and repairing of private dwellings, excluding material which account for a significant part of the value of the service supplied” can benefit from the reduced rate of VAT, currently 13.5%. This means that where a building contractor carries out home improvements and the material cost does not exceed two-thirds of the costs of the improvements then the reduced rate of 13.5% applies to the total construction service. A consequences of this is that a VAT registered building contractor will generally be entitled to recover VAT at the standard rate on most building materials purchased while the contractor is only liable to change VAT at the 13.5% reduced rate on the total supply (including the materials and labour elements of the job) to the homeowner. The difference in rates between the 23% input VAT and the 13.5% output VAT should normally be reflected in the VAT inclusive costs to the homeowner.

Noel Grealish (Galway West, Independent)
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22. To ask the Minister for Finance if he will share the Department’s fiscal contingency plan in the event multinational companies leave the Irish market on foot of the implementation of the global and or European minimum tax rate; and if he will make a statement on the matter. [33171/22]

Paschal Donohoe (Dublin Central, Fine Gael)
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Ireland is very supportive of the two-pillar solution for the taxation of the digital economy reached globally at the OECD, an agreement to which we signed up to along with over 130 other countries in October 2021.

My long-standing position is that the international tax system needs to adapt to keep pace with changes in how business is conducted internationally. This is a global issue which requires global action to solve in a coordinated way. The OECD agreement will ultimately bring long-term stability and certainty to the international tax framework based on a shared understanding of where value is created in digital business models.

Ireland has been very active in recent years in implementing international tax reforms. I published Ireland’s Corporation Tax Roadmap (2018 and 2021 update) to set out our commitments made and the significant, concrete actions we have taken in response. My Department facilitates extensive engagement with stakeholders in advance of new legislative measures being introduced and this collaborative, transparent process provides certainty to businesses situated here and those considering investing.

Of course, Ireland is still a small open economy and certain risks exist in relation to corporation tax. In relation to concentration risk, the latest data show that around €1 in every €8 of overall tax revenues collected arises from just 10 large corporate tax payers.  This concentration means total tax receipts are vulnerable to the business decisions of a handful of large companies, albeit that many of those have had a significant presence in Ireland for decades. While the strong growth in corporation tax over the last several years is, in many respects, welcome and a reflection of the success of our industrial policy in attracting high quality multinational firms and high wage jobs to Ireland, we must be careful not to craft long-term budgetary policies on the basis of these volatile and unpredictable corporate tax receipts.  As a result, the Government has frequently cautioned against building permanent expenditure commitments on the basis of corporation tax receipts.  

Proposed changes to the international tax regime from the OECD agreement also represent a risk to the CT revenue stream. My Department’s central estimate at present is that c.€2 billion could be lost in corporate tax by 2025 relative to baseline. I would stress that there is significant uncertainty attached to this technical assumption; the final figure could be considerably different. However it is my view that the benefits of current OECD and EU tax reforms outweigh the negatives. The reforms achieve a fine balance that will provide the certainty and stability required by businesses here for future economic growth and employment creation.  

The government has taken actions to address the risks associated with the concentration and volatility of CT receipts, including prioritising the reduction of debt and continuing to broaden the tax base. Finally, last year I established the Commission on Taxation and Welfare to analyse the structure of our public finances and to propose reforms to ensure the long-term sustainability of our tax and welfare systems. The Commission is due to report next month on how to best address vulnerabilities in the tax base to ensure that we are in a position of strength to address any future economic shocks that may occur.