On 28 May, the OECD Inclusive Framework on BEPS agreed a programme of work aimed at developing a consensus solution to the tax challenges arising from the digitalisation of the economy. The work will be undertaken under the auspices of the OECD over the coming months, on a "without prejudice" basis. The work programme was published by the OECD on 31 May last and endorsed by G20 Finance Ministers at their meeting in early June.
The programme is structured under two broad pillars, known as Pillar One and Pillar Two. In very broad terms, Pillar One is examining where profits of multinationals are allocated and examining mechanisms for potentially amending existing approaches. Pillar Two is examining the concept of minimum effective taxation.
The work on both Pillars is at a very early stage and the OECD work programme provides a framework for detailed work to begin in the OECD's technical working parties. The discussions on both Pillars are not yet formulated as draft proposals which can be fully analysed by countries at this stage.
The proposals on the table under Pillar One are, as yet, quite diverse and there is no clarity on what might ultimately be agreed. While clearly a change in how profits are taxed in different jurisdictions would result in a shift in profits being allocated from one location to another, upward and downward adjustments in revenue won’t become clear until technical work advances.
As regards Pillar Two, the work programme will detail some of the potential mechanics of how a minimum taxation proposal may operate but there is not sufficient detail at this stage to estimate the impact of any eventual proposal on corporation tax receipts.
In the circumstances, it is not possible to calculate the impact on corporation tax receipts of implementing the proposals as they are currently drafted. Officials in my Department and Revenue will be actively engaged in the work at OECD, including the estimation of the impact of the options as they emerge in more detail.
The Deputy will be aware that on 23 May, I delivered a speech on this important topic at the Harvard Kennedy School and Irish Tax Institute Global Tax Policy Conference where I signalled that change is coming in the international tax rules as a result of the work now underway at the OECD to find a globally agreed solution to the challenges in relation to the taxation of an increasingly digitalised international economy.
In that speech, I outlined my belief that it might be possible to find a globally acceptable agreement within the broad Pillar One proposals that provides certainty. I also set out the principles that would need to be observed in order for the OECD process to result in an agreed outcome. Those principles include aligning taxing rights with value creation, respecting the long established international corporate tax framework as well as the primary taxing rights of exporting countries and not disproportionately benefitting large countries at the expense of smaller ones.
As I have outlined, a minimum effective tax proposal had not, until recently, been part of the discussions at the OECD on addressing the tax challenges of digitalisation and I remain to be convinced of the validity and appropriateness of this aspect of the work.
Nevertheless, Ireland is positively engaged in the discussions at the OECD and I remain open to solutions which respect our right to compete fairly and which respect the legitimacy of Ireland’s longstanding 12.5% corporate tax rate. In all of these discussions my key priority will be to ensure that as this important work advances, Ireland’s interests are central to the process of forming that globally agreed consensus.
Within those parameters, if the outcome of this work can, in these changing times, provide tax certainty for governments and for business, it will be very worthwhile.