The corporation tax paid by some large multinational corporations and the rate at which they pay that tax is an issue that has attracted a lot of public and media attention recently. Every country in the world has its own particular tax system. These systems have been put in place and developed over the years to reflect their own circumstances. Some multinational corporations, with the assistance of legal practitioners and tax advisers, have exploited the differences in these systems to their own advantage. What is evident is that these corporations can organise their company structures to such an extent that they are able to minimise their corporate tax liabilities while still acting within the law.
In recent weeks national and international attention has turned to Ireland, our competitive corporate tax rate, and the tax arrangements employed by some multinational corporations based here. I want to reiterate some points that are very important to the debate.
Firstly, I want to make it clear that we do not have a special low corporation tax rate for multinational companies. Ireland’s tax system is statute-based so there is no possibility of individual special tax rates for companies.
All companies resident in Ireland are chargeable to corporation tax at the 12.5% rate on the profits that are generated from their trading activities in Ireland. A higher 25% rate applies in respect of investment, rental and other non-trading profits. Chargeable capital gains are taxable at the capital gains tax rate of 33%.
The tax rates that were quoted publicly are, emphatically, not the rate of tax paid by such companies, or by any company, on their Irish activities. Having examined the document produced by the US Senate Subcommittee, it appears that the rate that is being quoted is reached by taking the Irish tax chargeable on the branch activities of companies that are not tax resident here, and dividing this figure by the entire global profit of the company concerned.
It is clearly wrong and misleading to attribute this rate of tax to Ireland. Companies which are not tax-resident in Ireland are not chargeable in Ireland in respect of their non-Irish profits, and these non-Irish profit figures should not be used to assert special tax rates that simply do not apply here.
Secondly, the ability of multinational entities to lower their aggregate, global tax payments using international structures reflects the global context in which Ireland and indeed all countries operate. This is an issue that we cannot solve on our own, and in a time where citizens are being asked to dig deeper into their pockets, Governments around the world are now taking co-ordinated action to ensure that these corporations pay their fair share of taxes.
I would like to reassure the house that Ireland has been proactive and has already taken the lead on many of these global issues, for example:
- The Irish Presidency has made significant progress on a number of key files in the area of tax evasion and tax fraud and we were able to bring a number of these to a successful conclusion:
- At the June Ecofin meeting we agreed a VAT anti-fraud package to combat sudden and massive VAT fraud.
- In May, significant progress was made on widening the scope of the EU Savings Directive which involves automatic exchange of information between tax authorities, an important step forward in an area where progress has been stalled for a number of years.
- And also in May we brokered an agreement among EU Finance Ministers to set out a roadmap on aggressive tax planning and good governance.
All of these achievements have been acknowledged as significant by our EU colleagues. In fact, the EU Tax Commissioner, Algirdas Semeta, took to Twitter last week publicly thanking us for our "very successful Presidency" from a tax perspective.
- Beyond the EU, Ireland is actively participating in the OECD’s "Base Erosion and Profit Shifting" project, which will shortly produce an action plan that will be the main toolkit of the global effort to tackle this issue.
- And, in December last year, Ireland signed an Agreement with the United States to provide for the automatic reporting and exchange of information between the US Treasury and the Irish Revenue Commissioners. In so doing, Ireland was the fourth country in the world to sign such an agreement, which gave effect to the FATCA regulations. This was a welcome opportunity to demonstrate our commitment to combat tax evasion, and in particular, demonstrates our excellent relationship with the US authorities in such matters.
Both the OECD and EU work has clearly demonstrated that this is a global problem, which cannot be solved by one nation or even one continent acting on its own.