Dáil Éireann Debate, Tuesday - 18 April 2023
374. Deputy Michael Lowry asked the Minister for Finance if he will provide an update on the impact of the implementation of Pillar One and Two rules on the Exchequer; his plans to reduce any negative impacts; and if he will make a statement on the matter. [16982/23]
View answer375. Deputy Michael Lowry asked the Minister for Finance if his Department perceives the EU directive on Pillar Two rules as being a risk to long-term tax stability and certainty in Ireland, if other EU Member States were to advocate for a minimum corporation tax rate that would be higher than 15% in the future; how the Exchequer will manage such a risk; and if he will make a statement on the matter. [16983/23]
View answerI propose to take Questions Nos. 374 and 375 together.
The Department of Finance and the Revenue Commissioners are continually monitoring the impact of the potential economic impact of implementation of the OECD agreement.
An initial estimate of the potential cost of implementation of both pillars of the OECD agreement in terms of reduced tax receipts was published in 2020 as being potentially in the region of €2 billion per annum - approximately 20% of CT revenue at that time.
Since 2020, while acknowledging that CT receipts have increased considerably over that time, it has not been possible to update this figure while so many aspects of the rules remain undecided and so the estimate used for budgetary purposes has remained at €2 billion.
For Pillar One, significant uncertainty remains in relation to the final design of certain elements of the rules which will have a bearing on the potential impact to the Exchequer. Officials from the Department of Finance and the Revenue Commissioners continue to engage constructively in negotiations on these matters at the OECD to ensure that Ireland’s best interests are protected and to ensure that the outcome of this work is faithful to the October 2021 agreement and represents a fair outcome to all jurisdictions.
Pillar One will come at a cost as some taxing rights are allocated to market jurisdictions but as a small and open economy this is a price that is worth paying for the stability of the international tax framework.
Pillar Two of the OECD agreement will implement a minimum rate of tax, not just in Ireland, but globally. The EU Minimum Tax Directive will implement the minimum tax element of Pillar Two in the EU, including in Ireland. Domestic legislation will be brought forward in the Finance Bill later this year and a detailed Feedback Statement was published recently.
This Directive will be significant in ensuring a consistent application of the OECD agreement on minimum tax across all member states and in accordance with EU law, and thus will play an important role in safeguarding Ireland's competitive tax regime. The Directive provides for implementation by 31 December in keeping with the OECD agreement’s requirement of implementation this year.
Contrary to being a risk the certainty and stability, it is expected that overall, the implementation of Pillar Two will bring long-term stability and certainty to the international tax framework for both business and government alike.
We are all aware that Tax Sovereignty is an area close to the heart of Irish citizens and direct tax remains a sovereign competence and any change would require a unanimous decision from all EU member states.
It is of course open to each Member State to have whatever tax rate they choose. Ireland’s longstanding 12.5% rate of corporation tax will remain in place for the vast majority of business in Ireland as the 15% effective tax rate will only apply to in scope entities with an annual turnover of €750 million or above.
In competing for future investment Ireland will continue to play to our strengths, including maintaining a forward-looking business environment, a whole-of-government approach to ensuring we remain agile and competitive, and importantly recognising the value of an educated and dynamic workforce who have consistently delivered innovation and profitability over many decades for businesses that have made Ireland their home.
