Tuesday, 15 October 2019

Questions (132, 156, 157)

Michael McGrath

Question:

132. Deputy Michael McGrath asked the Minister for Finance if he will provide an outline of the OECD corporate tax proposals; and if he will make a statement on the matter. [42349/19]

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Michael McGrath

Question:

156. Deputy Michael McGrath asked the Minister for Finance the fiscal impact in monetary terms of the new corporate tax proposals put forward by the OECD; if this is not possible at this stage when he expects to have such an analysis completed; and if he will make a statement on the matter. [42341/19]

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Michael McGrath

Question:

157. Deputy Michael McGrath asked the Minister for Finance the process and timelines now that the OECD has put forward proposals on corporate tax reform; if this will involve all countries signing up to the proposals; the result if all countries do not sign up to the proposals; the result if only a majority of countries sign up; if countries that do not sign up can ignore the proposals; and if he will make a statement on the matter. [42342/19]

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Written answers (Question to Finance)

I propose to take Questions Nos. 132, 156 and 157 together.

The OECD is currently undertaking a significant project to address the tax challenges of the digital economy. The work is being divided across two Pillars – Pillar One and Pillar Two.

I understand that the deputy is referring to the public consultation document published on 9 October in respect of the ‘Pillar One’ proposals. The consultation paper outlines a proposed ‘Unified Approached” developed by the OECD Secretariat after continuous consultation with countries.

The work under ‘Pillar One’ focuses on the distribution of taxing rights in respect of highly digitalised activities and seeks to undertake a coherent review of the profit allocation and nexus rules used in the existing international tax framework. There has been three differing proposals under discussion and this unified approach is an attempt to find consensus based on the common features of those proposals.

The unified approach is an OECD Secretariat proposal to allow for discussion and to form the basis for future negotiation between countries. The unified approach has been referred to by the OECD as “sketching the first draft of an architecture” of an eventual solution. While the unified approach represents an advancement of the Pillar One proposals, there are significant remaining questions and a huge amount of technical consideration and discussion is still needed.

The detail of the proposal is set out in the OECD public consultation document which is available at: http://www.oecd.org/tax/beps/public-consultation-document-secretariat-proposal-unified-approach-pillar-one.pdf

In summary, the OECD document proposes creating a new taxable nexus for certain highly digitalised consumer facing businesses and rules for calculating how much profit should be considered to relate to this new nexus. At the same time, the approach largely retains the current transfer pricing rules based on the arm’s length principle but complements them with new solutions in areas where tensions in the current system are the highest.

The proposal also seeks to increase tax certainty for taxpayers and tax administrations by agreeing rules on how the tax due in respect of marketing and distribution functions should be calculated.

At this early stage it is not possible to estimate the potential impact in monetary terms of the implementation of any outcome which may eventually be agreed at the OECD. Technical working parties at the OECD are examining the various issues in detail and no decisions have yet been made. Work on estimating any potential impact is underway by my Department and the Revenue Commissioners and this work will continue to evolve as the proposal develops. Currently however there is insufficient clarity to properly assess the potential impact on tax revenues of any of the proposals under discussion at the OECD. Ultimately any monetary impact will depend on the detail of whatever is actually agreed globally.

Regarding the issue of whether all countries must sign up to the proposal, the OECD operates on the basis of consensus. It is hoped and envisaged that a consensual agreement is reached that all members of the BEPS Inclusive Framework will sign up to. Where all countries do not sign up to a final proposal, this may damage the effectiveness of any agreement, and may result in further fragmentation to the international tax system with the potential for double taxation.

Ultimately, any changes will also need to be implemented by countries for them to be effective, either through domestic law changes or via multilateral instruments similar to the OECD BEPS Multilateral Instrument.

In terms of timelines, the OECD’s ambition is to seek political agreement during 2020 although further technical work and work in respect of implementation is likely to continue over a longer period.

A further public consultation will be launched on the separate 'Pillar Two proposals' in mid-November.

Ireland recognises that further change to the international tax framework is necessary to ensure that we reach a stable global consensus for how and where companies should be taxed. A certain, stable, and globally agreed international tax framework is vital to facilitate cross border trade and investment. We remain convinced that the OECD BEPS Inclusive Framework is the correct forum for this work to be carried out. There are a variety of views at the OECD table and the eventual outcome of the work will need to strike a balance to reflect these differing perspectives.