Last week, the European Commission published its Country Specific Recommendations for all EU Member States, which are an integral part of the European Semester cycle of economic governance. The overall objective is to encourage the Member States to increase their growth potential by continuing to improve their economies and further strengthening their economic resilience. It is important that Member States should prioritise investment needs and address bottlenecks and reforms with the aim of improving sustainable and inclusive growth.
In this regard I welcome the publication of the European Commission’s Country Specific Recommendations for Ireland. While one of these recommendations calls on Ireland to continue to take action on addressing aggressive tax planning, it is notable that Commissioner Moscovici has publically acknowledged that we are on the right track and encouraged us to continue in this direction.
Ireland's actions in recent years have demonstrated our clear commitment to taking action to address aggressive tax planning. Ireland’s Corporation Tax Roadmap, which was published last September, set out a clear range of actions which Ireland is taking on corporate tax reform. Significant actions have already been taken on foot on the Roadmap including the introduction of Controlled Foreign Company rules, amendments to Ireland’s exit tax rules, and the prompt ratification of the BEPS Multilateral Instrument.
As set out in the Roadmap, further actions will be taken in Finance Bill 2019 including the amendment of Ireland’s transfer pricing rules and the introduction of anti-hybrid rules.
As a very open economy which serves as a key European base for a significant number of non-EU headquartered multinational companies, it is to be fully expected that Ireland would have a higher percentage of outbound royalty payments than other Member States. Concerns about outbound payments are justified in circumstances where the relevant profits should in fact be taxed in the EU or where the profits are ultimately being untaxed (either in the recipient or parent jurisdiction). It is my belief that neither of these concerns should arise in respect of outbound payments from Ireland.
The international consensus reached during the BEPS project is that profits should be taxed where the ‘DEMPE’ functions occur. To the extent where DEMPE functions occur within the EU, Member States have the ability to tax the profits attributable to those functions within their jurisdiction under the international corporation tax framework.
Furthermore, the overwhelming majority of the outbound payments made from Ireland are made by companies which are ultimately owned by companies resident and taxable in the United States. It is my understanding that reforms introduced by the US in the Tax Cuts and Jobs Act in 2017 should make it impossible for any such royalties to avoid tax in the US even if they are not paid to the US directly and are not taxed in the recipient jurisdiction.
For these reasons I believe that the actions set out in the Roadmap are appropriate with regard to addressing aggressive tax planning but, as always, I will continue to keep the situation under review and shall act accordingly as circumstances demand.
Ireland is fully committed to addressing the challenges that have arisen from the digitalisation of the world economy and we will continue to contribute positively to the discussion at both EU and OECD level in pursuit of a stable, and globally agreed international tax framework which is vital to facilitate cross border trade and investment.