Dáil Éireann Debate, Wednesday - 27 January 2021
211. Deputy Carol Nolan asked the Minister for Finance the measures being taken by his Department with respect to corporation tax reform and to address concerns that Ireland is disproportionately reliant on the revenue generated by this tax; and if he will make a statement on the matter. [4039/21]
View answerAs the Deputy may be aware, on 14 January I published an Update to Ireland’s 2018 Corporation Tax Roadmap. The Update demonstrates that Ireland has a proven track record of taking significant actions to prevent aggressive tax planning. Appendix 1 of the Update outlines 20 corporation tax reforms that Ireland has implemented since 2013, showing an extensive and continuing programme of reform. The Deputy may also be interested in page 21 of the Update, which summarises our commitments to future action, consideration and consultation to ensure that our corporation tax code remains competitive, fair and sustainable.
In relation to the Deputy's second question, the Department of Finance carried out a comprehensive economic impact assessment of Ireland’s corporation tax policy in 2014. This identified that Ireland collects a similar share of corporation tax as a percentage of GDP to the EU average. Also, a distinctive feature of the Irish economy is the high share of economic activity accounted for by foreign direct investment. Multinationals also account for a large proportion of Ireland’s corporation tax receipts, which is not surprising given our success in attracting leading multinationals to locate here and our high level of integration with the global economy. This level of concentration results in potential volatility in our corporation tax receipts, a fact that has been widely recognised by commentators including the Irish Fiscal Advisory Council.
My officials and I are fully aware of the risks associated with this level of concentration and volatility, and actions have been taken in recent years to mitigate the risk of over-reliance on potentially cyclical or over-concentrated corporation tax receipts. A range of base broadening measures have been introduced over the last decade and the rainy day fund was established and funded. While corporation tax receipts were maintained and in fact over-performed against expectation in 2020, these recent measures helped to fund the emergency support and stimulus measures introduced by the Government last year to support businesses facing the challenges arising from the COVID-19 pandemic.
Notwithstanding the current strength in corporation tax receipts, the risk of future volatility remains. The second round of the OECD BEPS process could pose a risk to corporation tax revenues in small open economies such as Ireland. Specifically, the allocation of corporation tax receipts based on the location of a company’s sales or users would benefit larger markets that are net-importers. Small, export-intensive economies such as Ireland would lose a portion of its tax base as a larger proportion of profits would be allocated to larger countries.
Ultimately, any impact on the Irish Exchequer and on inward investment will depend on the detail of whatever is actually agreed globally. However, my Department’s working estimate based on ongoing work being carried out by the Revenue Commissioners, is that the overall risk from BEPS-related changes could be in the range of €800 million to €2 billion annually. These significant potential costs notwithstanding, Ireland recognises that change is necessary to ensure that we have an international tax framework which fits the modern world. The certainty and stability provided by a globally agreed sustainable solution would help encourage trade and economic growth to the benefit of all.
