Dáil Éireann Debate, Tuesday - 21 May 2024
232. Deputy Bernard J. Durkan asked the Minister for Finance the extent to which he continues to be reassured that taxation changes in respect of corporation profits tax are not structured in a way to undermine this economy; and if he will make a statement on the matter. [22982/24]
View answer234. Deputy Bernard J. Durkan asked the Minister for Finance the degree to which he remains satisfied that EU competition rules are not set to invade the competency of national governments to retain control of tax policy; and if he will make a statement on the matter. [22984/24]
View answerI propose to take Questions Nos. 232 and 234 together.
Taxation remains one of the most effective policy levers available to any Government, and each EU Member State has developed a tax mix appropriate to their particular economy. Ireland has always maintained that tax competition is an important policy tool, particularly for smaller Member States, provided that competition is fair and based on substance.
To that end Ireland has always been, and continues to be, a strong proponent of unanimity in tax matters at EU level. Tax sovereignty is an area close to the heart of Irish citizens and was one of the reasons the Irish people initially rejected the Lisbon Treaty. A subsequent protocol to the Treaty provided guarantees in relation to tax sovereignty, which paved the way for the Treaty's approval in Ireland.
Ireland has shown that we are willing to engage with and agree EU tax directives that seek to improve the single market and implement agreed international best practices in a consistent manner across the EU. Unanimity hasn't prevented the agreement of more than 20 taxation proposals over the lifetime of the last Commission. This includes important Directives on the EU minimum tax, VAT, administrative co-operation, Anti-Tax-Avoidance and most recently the FASTER directive on withholding tax procedures. Through negotiations on these files, Ireland always maintains the principle that matters of direct taxation remain a Member State competence under the treaties, and tax harmonization is contrary to that principle.
In terms of state aid competition rules, in general fiscal aid is prohibited under the Treaty on the Functioning of the European Union (TFEU). However, various categories of schemes are considered compatible, as their positive effects are considered to outweigh their negative impact. The State Aid Framework performs a balancing act of economic policy to prevent distortion of fair competition, while also achieving particular policy objectives.
The EU State Aid legal framework is continually evolving. The development of new tax expenditures and the evaluation of existing ones should have regard to the applicable EU Regulations in force at the time.
On this basis I am satisfied that taxation is, and will continue to remain, a national competence for EU Member States.
Ireland’s participation in global and European tax reform does not indicate that we are conceding any sovereignty in tax matters. Ireland is a proponent of multilateralism being the best solution to global tax problems and this is what underpins our position on EU tax matters and our decision to join the international consensus on the Two-Pillar Agreement at the OECD.
In October 2021, Ireland, along with almost 140 other countries in the OECD/G20 Inclusive Framework on Base Erosion and Profit Shifting (BEPS) signed up to an historic agreement to reform the international tax framework as it applies to large corporate groups.
Building on the original BEPS project, the agreement contains a two-pillar solution to address the tax challenges arising from digitalisation and globalisation. The agreement recognises how large businesses across the globe now operate commercially in a digital environment and generate value. These rules are designed to update the international tax framework to keep pace with these developments in a coordinated way.
By transposing the EU Minimum Tax Directive in Finance (No. 2) Act 2023, Ireland and the rest of the EU sought to implement the new global minimum tax. The Directive aims to ensure that there is a consistent application of the rules across the EU and in accordance with EU law.
The Government’s decision in 2021 to join the global agreement was not taken lightly and I fully appreciate the concerns raised by those worried about Ireland signing up to the Pillar One and Pillar Two rules. The OECD agreement has the potential to bring much-needed stability to the international tax framework after the turbulence and uncertainty of recent years. Implementation of Pillar Two in Ireland, which is already well underway with legislation in place, will safeguard Ireland’s future competitiveness by providing a sound and stable basis for business investment decisions in the long-term.
