Dáil Éireann Debate, Thursday - 5 October 2023
82. Deputy Pearse Doherty asked the Minister for Finance his Department’s position on the European Commission’s own resource proposal based on company profits; the estimated additional contribution the proposal would require on annual basis; and if he will make a statement on the matter. [43392/23]
View answerIn June, the European Commission published an adjusted package for the new generation of own resources. With this package, the Commission proposes a new statistical-based own resource linked to the corporate sector. The proposals are, on the face of it, the Commission’s grab for Irish corporate profits. Sinn Féin opposes the proposal. Will the Minister outline his position and that of the Government on the proposal?
As the Deputy will be aware, an updated package of possible new own resources proposed by the European Commission on 20 June included a new proposal for a corporate statistical own resource based on company profits. He will also be aware that a number of officials from my Department met yesterday with Oireachtas Joint Committee on Finance, Public Expenditure and Reform, and Taoiseach - I assume the Deputy participated - to discuss this and a number of related EU proposals. I hope this exchange was helpful.
The proposed new own resource is based on sub-components of gross domestic product, namely the application of a 0.5% call rate to the gross operating surplus statistic recorded for the sector of financial and non-financial corporations under the European system of accounts.
As such, this proposed new own resource is, in fact, an additional national contribution based on statistics, similar to the existing gross national income-based contribution that member states already pay into the EU budget. While the Commission contends it is not a tax on companies, my Department is concerned that it is premature to proceed with a proposal such as this while the OECD global tax process continues.
Ireland has continuously stressed that reforms around corporate income tax should be carried out at a global level. In addition, my Department's assessment is that Ireland would, in relative terms, be significantly impacted by this in terms of the effect on national contributions to the EU budget as compared to the existing situation because of exceptionally high corporate profitability in Ireland due to the large presence of multinationals. As proposed, own resource contributions based on the proposed gross operating surplus metric would, therefore, have a significant impact on the Exchequer, with Ireland disproportionately affected as the share of gross operating surplus in national income is much higher here than in almost any other member state.
In summary, we are among member states that believe this specific proposal fails the tests set by EU leaders on own resources when they agreed to the long-term EU budget in July 2020. Any proposals, they said, should deliver “simplicity, transparency and equity, including fair burden-sharing”. The new own resource proposals are presented as a package, including proposed new own resources based on the revised EU emissions trading system and the carbon border adjustment mechanism, that we broadly support. However, we cannot support the proposal for this corporate new own resource. Importantly in this context, my assessment of the situation is that, as of now, the new own resources proposals do not have the necessary unanimity of the member states to be agreed.
I thank the Minister for his response. I believe it is important there is political consensus on this issue but also across Europe in trying to build support for our position. The Commission's proposal, as the Minister said, is one of own resource that would be calculated at 0.5% of the notional company profit base, an indicator calculated by Eurostat on the basis of the national count statistics. While the Commission claimed it is not a tax, the truth is that the proposal approximates to company profits or gross operating surplus. Put plainly, it would target a share of member states’ corporation profits. We are net contributors to the EU budget and we have a set mechanism to contribute to that budget in the time ahead through national contributions.
The Minister said he believes this does not have the necessary support for unanimity. Where does he see this going now and what is the timeframe for this proposal?
Of course, the context is that the EU budget is under real pressure, which I acknowledge. Ireland has always sought to be a very constructive member state when it comes to supporting the policies and initiatives of the Union, and the budget is under pressure. I have pointed to our broad support for some of the other measures that were set out within that package but I have confirmed in the House and at the meeting of EU Finance Ministers our opposition to what is currently being proposed in respect of this specific own resource proposal.
To clarify what the impact would be in terms of the estimated additional contribution that the proposal would require, my Department's tentative estimate is that Ireland's annual contribution to the EU budget could on average rise by approximately €1.124 billion per year over the remainder of the current multi-annual financial framework, which runs until 2027. The context here is that we are already a significant net contributor. Ireland benefits enormously from EU membership and is a deeply committed member of the Union. In 2021, we received receipts from the EU budget of approximately €2.5 billion but our payments to the EU budget were approximately €3.5 billion, so we were a net contributor of approximately €1 billion. Of course, because of the calculation of the contribution to the EU budget being based on national income, Ireland's projected contribution to the annual budget is to increase very significantly in the coming years, and that is altogether aside from this specific proposal in regard to own resource.
As the Minister mentioned, the cost of this proposal to the State would be an additional €1.124 billion per annum and, obviously, that could increase depending on our gross operating surplus. It is a significant increase and I understand Ireland would be one of the highest contributors as a result of this mechanism. In his response, the Minister might outline the distributional impact and where Ireland would sit in the league table in respect of contributions to the budget if this proposal were to go ahead.
As the Minister said, it is targeting the gross operating surplus of the corporate sector. It is simply the case that the more profitable the member state’s private sector is, the higher the contribution will be to the budget. Thankfully, we have seen a large increase in our gross operating surplus. Back in 1995, it used to stand at €25 billion whereas it was nearly €300 billion in 2021.
Where does Ireland stand regarding the impact of this proposal and its distributional impact across member states. Does the Minister agree that is unprecedented? The reality is that it does not constitute an own resource mechanism but is potentially a pseudo-tax in all but name and, therefore, it runs contrary to what we are trying to achieve in the OECD base erosion and profit shifting, BEPS, programme. Will he outline the strategy of the Government for the time ahead? Is it simply to use our veto? Where do we go from here?
Ireland would be the fourth largest gross contributor to the corporate profits own resource after Germany, France and Italy, although we are a small member state in relative terms. At a political level, I set out my views at the July ECOFIN meeting and also put them directly to the EU budget Commissioner in May, when we met on the margins of the informal ECOFIN in Stockholm. In addition, my officials have had technical bilateral engagement with the relevant Commission experts in DG Budget on this file and have also provided technical input to the Spanish Presidency.
I can confirm that we are not alone in our concerns about the corporate profits own resource proposal. It is not for me to explicitly name or speak for other member states but, at a political level, at the ECOFIN in July and at official level since then, a number of other member states have either expressed opposition or scepticism about it. As the Deputy will be aware, this file requires the unanimous agreement of member states. At present, there is not the unanimity required to put this in place and I do not see there being such a situation in the period ahead. The majority of member states recognise there are many technical flaws in the Commission’s proposal and that much further scrutiny of the proposal is required. Other member states also share our concern at the disproportionate impact on corporate profits own resource on their national contribution.
We recognise the pressure the EU budget is under and Ireland will seek to be as constructive and supportive as we possibly can, but on this specific own resource proposal, our position is clear. We do not support it.
