International Agreements

Dáil Éireann Debate, Tuesday - 15 June 2021

Tuesday, 15 June 2021

Questions (53)

Pearse Doherty

Question:

53. Deputy Pearse Doherty asked the Minister for Finance the details of the agreement reached by the G7 and outlined in its communiqué published on 5 June 2021 regarding international tax reform in particular, the reallocation of profits and taxing rights for multinationals with profits margins above 10 %; the way it will operate if implemented; the multinationals that will be included and excluded; the OECD members that will benefit most in terms of revenue raised as a percentage of their GDP; the OECD members that will benefit least; the impact of the agreement on the State in terms of revenue and its inward investment offering; and if he will make a statement on the matter. [31855/21]

Oral answers (6 contributions)

Deputy Pearse Doherty

The second component or plank of the G7 agreement on international taxation that was announced was to reallocate profits and taxing rights so that multinationals pay tax where they operate rather than only where their head offices are based. This mirrors pillar 1 of the BEPS process and will, if implemented, affect the State's revenues. However the published communiqué, while offering a broad picture, did not provide the granular details of the proposal agreed by the G7. Having attended the summit, I ask the Minister to update the Dáil on the details of this part of the agreement, what companies it will apply to, how it will be implemented and what the Government's proposals are in relation to it.

Deputy Paschal Donohoe

I thank Deputy Doherty for his further question on pillar 2. There is no further detail beyond the communiqué to which Deputy Doherty referred. The main element of the statement from the G7 refers to the annual global turnover threshold. Beyond that, there is no further detail agreed between the G7 economies. That will happen within the OECD. The detail will be determined within the OECD and that will then structure the way in which a reallocation of taxing rights will take place. That is obviously something that is very important for Ireland. I have already indicated that out of the two pillars that were up for negotiation, the one that Ireland was willing to initially support was the pillar that covered the reallocation of taxing rights but the direction in which this is now going is towards a potential agreement that will include both pillars.

Deputy Pearse Doherty

As I said in my earlier contribution, Sinn Féin supports the BEPS process and believes we should assert our own influence on it. Based on the formula proposed by the OECD, the Department of Finance estimated in January 2020 that this could reduce the State's corporation tax revenue by approximately €2 billion annually. However, the agreement announced by the G7 last Saturday arrived at a different formula, with market jurisdictions wielding taxing rights of over 20% of profits on earning margins above 10%. That differs from the OECD proposal upon which the Department's estimations of tax revenue were based. Can the Minister give us any projections regarding the impact of the G7 proposal on pillar 1, if it were to be implemented? Can he give us further detail on the number or range of companies that would be impacted? For example, under the other pillar, it is companies with an annual turnover of over €750 million. It has been reported that Amazon, with profit margins of 6% in 2020, could evade this measure. What is the Department's view on that?

Deputy Paschal Donohoe

I thank the Deputy for his question. I am not in a position to comment on the tax affairs of any particular company. Obviously what is driving the process overall is the understandable issue, namely, to address the gap between how tax structures are currently developed across the world and the increasingly digital nature of the global economy. Deputy Doherty asked whether the Department has been able to update its revenue loss forecast from the G7 communiqué. We have not been able to do that because there is not enough detail in the G7 document to be able to form a view regarding how those policies would be executed. That in turn would allow us to model it separately. The second, more principled reason is that the G7 document is a communiqué and is not yet an agreement. We will develop our modelling as the OECD process continues to develop across the year.

Deputy Pearse Doherty

Agreement at OECD level can only be reached if that agreement and both pillars operate on a fair and equitable basis. While we know that developing countries will, in all likelihood, be pushing for stronger measures under pillar 2 to increase their own revenues, it is now clear that members of the G7 are seeking their own exemptions and carve-outs for strategic companies, industries and sectors in their own economies. The British Government, for example, is reported to be seeking exemptions under pillar 1 for financial services in the City of London, with HSBC, its largest bank in terms of revenue generating more than half of its income in China. Given that G7 members, like all countries and jurisdictions under the inclusive framework, will press for an agreement that serves national as well as international interests, it is only proper that we work on securing an agreement that serves the common, global good but also Ireland's national interests. At this early stage, does the Minister have any views on what that would mean vis-à-vis this pillar?

Deputy Paschal Donohoe

I am both publicly and privately making the case for the kind of agreement that Ireland would be willing to support. I am talking about my views on the rates and on the need for an agreement that accommodates small and medium-sized economies and not just the larger ones. In terms of what I believe an acceptable model could look like later on in the year, if agreement can be reached, it is one that will continue to be able to accommodate a low but substantial rate on a broad base of economic activity, as is the case in Ireland. It would also be an agreement that would bring stability to issues that have been ongoing for some time. An agreement brings challenges for Ireland but the lack of an agreement also brings challenges for Ireland. A third feature of any agreement is that it is one that is balanced in the breadth of companies to which it applies, if agreement can be reached. Obviously, our own domestic economy and the small and medium-sized enterprises within it are important and are a priority for the Government.