I propose to take Questions Nos. 78, 89, 93, 103, 108, 116, 128, 366 to 369, inclusive, 395 and 398 together.
The Government has noted the communique of 5 June from the G7 Finance Ministers which includes the desire for a global minimum effective tax rate of at least 15%. The G7 agreement is an important signpost towards an agreement but it is relevant also that there are 139 countries participating in the OECD/G20 Inclusive Framework on BEPS which is the formal decision body for any agreement. Any agreement will be a compromise and will need to be a consensus, and it must meet the needs of small and large countries, developed and developing.
Firstly, it is important to stress that the Government believes that it is in everyone’s interest to achieve a sustainable, ambitious and equitable agreement on modernising the framework for international tax to reflect increasing globalisation and digitalisation. Secondly, it is also important to highlight that reform of the international tax rules has been an ongoing process since 2013.
In this respect, Ireland has very much played its part in reframing these rules for the benefit of business and citizens, and we have proactively and diligently reformed our tax code in line with the new international norms. A lot has been achieved through the OECD’s BEPS process and we now have far more robust international tax rules and safeguards to prevent abuse, arbitrage, base erosion and profit shifting than existed a decade ago.
Since 2018, Ireland has constructively engaged in the more recent discussions to find a solution at the OECD to address the broader tax challenges of digitalisation and globalisation. This is the subject of the current negotiations which are expected to conclude this year. The OECD is proposing a two pillar solution. Pillar 1 concerns the allocation of a proportion of taxing rights to the market jurisdiction, while Pillar 2 concerns a series of rules, the Income Inclusion Rule, the Under-Taxed Payment Rule and the Subject to Tax Rule which are designed to ensure a minimum effective tax rate for large multi-national enterprises. It is important to note that the Pillar 2 proposals are broadly based on an existing US regime, GILTI, which applies to US multinationals in Ireland may already subject them to a top up tax in the US.
The minimum rate creates challenges for Ireland and other small countries for good reasons. I believe that any agreement must be able to accommodate healthy and fair tax competition. Small countries, and Ireland is one of them, need to be able to use tax policy as a legitimate lever to compensate for advantages of scale, location, resources, industrial heritage and the real, material and persistent advantage enjoyed by larger countries. At the same time, I fully accept that there needs to be clear boundaries to ensure any competition is fair and sustainable.
It is my intention to continue to make a case for the agreement to accommodate Ireland’s low but substantial 12.5% rate.
There will be a meeting of 139 members of the Inclusive framework on 30 June and 1 July in order to try reaching a consensus agreement. Further technical work will continue over the summer and in the autumn with a view to achieving a comprehensive agreement in October in lines with the principles agreed.
The Government has said for some time that change is coming and we will adapt to this change as we have done before. Ireland will remain an attractive place for inward investment.
My Department previously estimated the annual cost to the Irish Exchequer of agreement of BEPS related measures could be between €800 million and €2 billion, depending on the design of the final agreement. The starting point for the Department’s estimate was a provisional jurisdiction-specific revenue modelling-tool circulated to each country bilaterally by the OECD.
While this change could have a significant cost in reduced tax receipts, this is a price worth paying for the stability and tax certainty that will provide a robust international tax framework into the future. We have seen the seen the escalating trade tensions brought about by the introduction of unilateral digital taxes. It will benefit us all to avoid the risk of tit-for-tat sanctions negatively impacting the global trading environment. As a small open economy the imposition of sanctions could result in a disproportionate negative impact to our trading environment.
Regardless of the outcome at the OECD, Ireland will remain an attractive place for inward investment. Tax is not the only driver for multinational enterprises deciding to locate in Ireland, all of the building blocks that make Ireland an attractive place to invest will remain in place. We will maintain a competitive tax rate, with a stable business trading environment, and a young, well educated, English speaking workforce.