Will Ireland's corporation tax survive?

#648

Macron Aims to Force ‘Tax Justice’ on Facebook, Google and Apple

French lawmakers will start debating on Monday a tax meant to force Internet giants like [Amazon Inc.] and [Facebook Inc.] to pay a 3 percent levy on digital turnover.

Parliament will discuss the tax, which targets companies with 750 million euros ($842 million) in worldwide revenue and 25 million euros of French digital sales, over the next several weeks. The levy, described by Finance Minister Bruno Le Maire as ensuring “fiscal justice”, is expected to become effective starting Jan. 1.

French President Emmanuel Macron got support from the European Union’s competition chief Margrethe Vestager, who has imposed major fines on companies including Apple Inc. and Alphabet Inc. In an interview with France Inter on Monday, she said the best solution for taxing large Internet companies was to start in Europe.

“The best thing is a global solution, but if we want solutions in a reasonable time, then Europe must step forward,” said Vestager, who is in Paris and plans to meet with Macron’s chief of staff. “France is showing the way.”

Details on the proposed French tax:
**> **
> * The tax is due in April of each year, and is to be paid in two installments. In 2019, both installments will be due in late October, according to the bill.
> * The French government will tax online marketplaces, the sale of data for targeted advertising, and the sale of targeted online advertising.
> * The tax is to be pro-rated based on the number of users companies have in France, but there is no information about how this would be calculated.
> * Activities that won’t be taxed are direct e-commerce retailing, messaging or payment apps, and online advertising that doesn’t involve user data.
> * Companies will be allowed to offset the tax against French corporation tax.
> * The government said the tax will be an interim measure applied until a global consensus on taxing the digital economy is reached.
> * The measure is expected to bring in 500 million euros annually.
> * Lawmakers in Macron’s government are considering 3-year sunset clause.

https://www.bloomberg.com/news/articles/2019-04-08/macron-aims-to-force-tax-justice-on-facebook-google-and-apple

This can be offset against French Corp tax, but presumably their argument is that Amazon, Google, facebook etc. are currently paying little in French Corp tax

#649

Paschal the rascal giving the heads up

Donohoe expecting big changes in global corporation tax rule

The Minister for Finance says there is going to be a big shakeup in global corporation tax rules over the next 18 months.

Paschal Donohoe said he is expecting a renewed push by the US and European governments to change the way digital companies are taxed.

With many of the leading US digital companies resident in Ireland for international tax purposes, Mr Donohoe said it is important that Ireland does not get caught in a tax dispute that could impact on trade and investment decisions by multinational companies.

Mr Donohoe made his comments at the Global Tax Policy Conference at Dublin Castle today.

https://www.rte.ie/news/business/2019/0523/1051208-donohoe-tax-conference/

#650

https://www.esr.ie/article/view/1184

Aggressive Tax Planning Practices and Inward-FDI Implications for Ireland of the New US Corporate Tax Regime

Abstract

National corporate tax systems interact with each other in complex ways. Interactions with the US tax system are particularly important for Ireland given the significance of the US MNC presence in the Irish economy. The US system changed dramatically with the passage of the Trump administration’s Tax Cuts and Jobs Act. This paper outlines the history of corporate tax policy in the two jurisdictions and how the systems interacted up to the time of the recent changes. It also details the type of aggressive tax planning practices that grew up around the location of intellectual property assets. The likely implications of the new US tax regime for intellectual property location and inward FDI in Ireland are then assessed.

CONCLUSIONS

Ireland, it is concluded, is unlikely to be affected adversely by the recent dramatic changes to the US corporate tax system. This arises for the following reasons, which may be broken down into issues pertaining to production and IP location. In terms of production, the changes are likely to lead to increased real (plant and machinery) investment in Europe as well as in the US, and Ireland will be further advantaged relative to competitor EU locations. The tax changes offer little incentive to ‘reonshore’ or shift existing production back to the US. In terms of IP location, even if the US export subsidy for IP-intensive goods and services is deemed compatible with WTO rules, the margin associated with locating IP assets in Ireland will not disappear. Irish-located IP, furthermore, can be used to blend away the tax disadvantages of choosing to locate some IP or global intangible income close to where R&D is undertaken in higher-tax European economies.

The many uncertainties surrounding the sustainability and permanence of the
new regime, and the fact that key details remain to be clarified, will ensure however
that any major structural changes to investment behaviour will occur only over the
medium term.

How do these conclusions relate to reports of a recent sharp reversal in US FDI inflows to Ireland, as well as to Luxembourg and the Netherlands, which UNCTAD (2018b, 2019) ascribes to the tax changes? The background analysis in the reports reveals that these outflows reflect the repatriation of profits formerly held offshore for deferral purposes. These financial flows, as is widely recognised, are of limited relevance to the real economy.

The Central Bank (2019) remarks, for example, that:
Since the introduction of the US tax reform, Ireland’s reported holdings of US treasuries have declined by approximately €50 billion. This is consistent with the repatriation of retained earnings by US MNEs’ subsidiaries, as the firms may have sold US treasuries in order to repatriate funds to the US before paying dividends or engaging in share buybacks… The direct economic effects of these transactions on underlying Irish economic activity are likely to be limited.

An issue not considered in the present paper is whether and to what extent the tax rates of high-tax European economies might be adjusted downwards in the coming years in response to the US initiative.

#651

Jeremy Hunt, speaking on the Andrew Marr show, has said he intends to lower the UK corporation tax rate to match Ireland’s.

#652

Patrick Honohan, former Governor of the Central Bank, warns of a Corporation Tax supernova (and Oasis will reunite to bring us an anthem for the ages!)
https://www.irishtimes.com/business/economy/billions-of-euro-in-corporation-tax-could-disappear-like-a-supernova-explosion-1.4011293

He said this eminently quotable remark on RTE’s main business programme but the only report is on the IT. The rest of our business media are full of stories about his successor and some nonsense about a non-hacking in NZ.

When our Corporation Tax bubble bursts, we’ll have no-one to bail us out. Our EU partners will be overcome with schadenfreude.

#653

Modelling Recent Developments in Corporation Tax

https://www.gov.ie/en/publication/29cb12-modelling-recent-developments-in-corporation-tax/

This paper takes a detailed look at CT developments, from both a micro- and a macro-economic perspective with several important findings arising from a detailed modelling study. In particular, the marked rise in CT receipts and corporate profitability since 2014 is highlighted.

#654


UK analysis of Ireland’s CT vulnerability