Dáil Éireann Debate, Tuesday - 10 July 2018
105. Deputy Thomas P. Broughan asked the Minister for Business, Enterprise and Innovation the work being undertaken to ascertain the way in which employment may be affected by an EU digital tax; and if she will make a statement on the matter. [30629/18]
View answerThe EU Commission published proposals in March 2018 in relation to digital taxation which are currently being debated. The OECD has also published an interim report on the Digital economy which acknowledges the lack of consensus in the area of taxations. The OECD states that further analysis is required in order to achieve an agreed evidence backed solution focused on the alignment of taxing rights with the location of real substantive value creating activity. Suffice to say that, as it stands, there is no clarity on what approach will be taken.
It is therefore not possible to determine the impact on employment. it is likely that any changes to how digital businesses are taxed will impact Ireland’s corporation tax receipts as the changes would likely see greater taxing rights in larger countries. The Summer Economic Statement published sets out that the Government will be prudent in its approach in 'setting aside some of the historically high levels of Corporation Tax for the purpose of creating the Rainy Day Fund'.
Regardless of the final outcome, it must be borne in mind that Ireland’s corporation tax regime will continue to be competitive while also offering long-term certainty to international business. Crucially, our regime is underpinned by substance. Enterprise 2025 Renewed reaffirms our focus on export-led growth that is underpinned by innovation, talent and investments in place-making. We cannot predict the future, but we are taking action to deepen resilience across our enterprise base. Our policies place an emphasis on strengthening the productivity performance and potential of our Irish owned enterprises. We will continue as a country to be anticipatory and adaptive to global challenges.
The continued competitiveness of our corporation tax regime, whilst important, is only one element of Ireland’s value proposition for FDI. Business location decisions are informed by a range of factors. Access to the EU market is, and will remain, a key factor in attracting FDI. Other key factors involved in attracting and maintaining FDI here include:
- Talent: we have a talented workforce that is hardworking, flexible and adaptable to change and a first-class education system that helps nurture the future talent required
- Innovation: we have developed leading edge capabilities in R&D, have a supportive regime for innovation and continuously work with enterprises to gain more investment in high value added research, development and innovation activities.
- We have a proven track record of delivery for enterprise and it is easy to do business here.
- We are English speaking yet can service over 140 languages from Ireland which greatly assists ICT and Financial Services companies in particular.
- Through Project Ireland 2040, the National Planning Framework and National Development Plan, we will focus coordinated investments to ensure that we offer a range of compelling, dynamic and competitive locations for investment throughout Ireland.
My officials and I, as well as the IDA, remain in regular contact with companies and with colleagues across Government as this area of international taxation evolves.
I will remain alert and responsive to any changes with regards to the taxation of the digital economy or indeed the overall global tax environment, working with colleagues across Government to ensure that Ireland can react and adapt when required.
Background to Digital Tax developments
In March 2018, the EU Commission published two proposed Directives. The first one, a Digital Services Tax (DST), proposes a ‘temporary’ solution of a 3% levy on turnover from certain digital service activities. The thresholds for application is for a global turnover of €750m and EU turnover of at least €50m. The second, "comprehensive solution", requires an overhaul of international taxation, establishing the concept of a "digital permanent establishment", allowing countries taxing rights over the digital business carried out by a company in that country, even where the company has no physical presence in the country.
Prior to the publication of the Commission’s proposals, the OECD had released their interim Report on the Digital Economy, which acknowledges the lack of consensus in the area and that further analysis is required in order to achieve an agreed evidence backed solution focussed on the alignment of taxing rights with the location of real substantive value creating activity.
The Commission proposals are now being debated and it would seem that there is now a widespread acceptance among Member States that the value of these EU discussions is primarily to give impetus to the OECD debate. This is illustrated by the recently issued joint statement from the Finance Ministers of Sweden, Denmark and Finland calling for the EU to abandon plans for a digital tax based on turnover and to support reform of digital taxation at OECD.
While a number of Member States remain committed to the interim proposal of a Digital Services Tax on turnover, it should be recalled that the OECD’s Task Force on the Digital Economy found that there is no consensus on the merit or need for such short-term measures which it is widely acknowledged can be economically damaging.
