Tuesday, 29 September 2020

Ceisteanna (39)

James Lawless


39. Deputy James Lawless asked the Minister for Finance if he will provide a report on European Union digital taxation plans. [26733/20]

Amharc ar fhreagra

Freagraí ó Béal (6 píosaí cainte) (Ceist ar Finance)

I ask the Minister to provide a report on EU plans for digital taxation.

The European Commission first proposed a digital services tax in early 2018. After a period of intensive technical and political discussions among member states, a revised proposal for a digital advertising tax was brought to ECOFIN in March 2019 but no agreement was reached there. It was subsequently agreed that member states would focus on supporting the ongoing discussions at OECD level on addressing the tax challenges of digitalisation.

If the OECD work is successful in reaching consensus, pillar 1 of that work should address the same concerns that a digital services tax was trying to address.  How pillar 1 is ultimately implemented will depend on the nature of the eventual agreement reached at the OECD.  The European Commission has indicated it will revisit the issue if agreement is reached at the OECD on the ongoing work. In her recent state of the Union address, Ms Ursula von der Leyen, President of the European Commission, reiterated her support for reaching an international agreement on digital taxation, but highlighted that should an agreement not be made at the OECD, the EU will move forward with its own proposals next year.

Separately, the issue of digital taxation or some form of digital levy has been discussed in the broader context of the EU identifying new EU resources to fund the EU budget.  To date, no proposal has been made in this area.

  I have consistently stated that unilateral digital taxes only serve to increase international trade tensions and undermine the trust required to achieve a lasting global agreement at the OECD. Ireland is committed to finding a global consensus-based solution to issues that have arisen in the international tax framework as a result of increasing digitalisation. I believe the OECD is the best forum at which to achieve this aim. The OECD base erosion and profit shifting, BEPS, inclusive framework is due to publish an update on its ongoing work to address tax and digitalisation in October.  We will engage positively in that work.

I was aware that there were efforts afoot at OECD level and, to a certain extent, at EU level in that regard. I understand EU officials have stated they will seek to press ahead with proposals for a digital tax on technology companies at the end of the year if the wider collection of 137 or more countries fails to get a multilateral deal from the OECD. My understanding is that the US withdrew from OECD talks earlier in the year. It may have rejoined, but my understanding is that it is out for the moment. That may change in November. In any event, it highlights the difficulties of securing a deal or agreement at OECD level. Pascal Saint-Amans, director of the OECD tax policy centre, stated that Ireland will suffer more than most countries if those efforts to secure a global digital tax agreement fail, triggering an international trade or tax war. I agree with the Minister that it would be destructive and politically and economically detrimental were those events to unfold, but we must be as proactive as possible in trying to prevent that. The Minister wishes for an accord at OECD level, as do all Members. He warned recently that the State could lose up to €2 billion of corporate tax revenue under those proposals or approximately 20% of our corporate tax rate. Tax sovereignty is an important issue. It underpins our approach to the Apple tax matter and many issues that are key to the health of our economy. What is our plan B?

The question from the Deputy highlighted how challenging this environment will be. In last year's budget and much of the work that led up to it, I made the point that our corporate tax revenues, which have increased in recent years, will fall. The reason for that fall is highlighted in the question asked by the Deputy. If agreement is not reached, the risks related to double taxation will pose a direct challenge to the revenue we currently collect. If agreement is reached, it is very likely that there will also be challenges and risks to the revenue we are currently collecting. There will be effects on the tax we collect in the future, and on corporate tax revenue in particular, if agreement is reached or if it is not reached. I believe the OECD is the best place to try to get agreement for the key reason that if agreement is reached inside the OECD, at least it minimises the risk of a tax issue flowing into trade difficulty. Trade difficulty in this area would be an even bigger challenge for Ireland.

I agree with almost everything the Minister has stated. President von der Leyen, to whom the Minister alluded, indicated in the context of the EU Covid budget and recovery package that member states, whether the so-called "frugal four" or otherwise, must repay by 2058 any borrowing they receive under the €750 billion once-off recovery fund which is to be borrowed on the markets by the Commission and then distributed to member states in grants and loans. My understanding is that the Commission has asked member states to put proposals in place in that regard. As the Minister is aware, the EU has the power to impose pan-EU levies that would be used for repayments. In other words, the €750 billion rescue package would be underpinned by pan-EU fundraising or revenue-raising initiatives which would include a digital tax and a carbon levy with a view to introduction by 1 January 2023, which is not very far away. Ireland would have to sign up to that. I understand it would be possible to use a veto as unanimous agreement by member states would be required. How stands Ireland on that matter? I realise it is challenging issue, but it is an important one.

That is the challenge we face. That agreement brings consequences, but agreement not being reached also brings consequences. The Deputy is correct in his summary of the matter. Several proposals are being put forward within the EU to generate what are called "own resources". They are, in essence, taxes the revenue from which goes back to the European Union. There are several such taxes that I believe we will be able to support, such as some of the proposals in favour of a plastics tax, but there are other proposals relating to digital taxation and the whole addition of a carbon and border adjustment tax that raise very big issues for any exporting country within the European Union, not to mention the EU as an exporter in many important parts of the global economy. That said, the only way we can deal with these issues is to try to engage with them constructively and see whether some kind of agreement can be reached in these areas that gets the balance right between our own interests in this area and the broader European needs which the Deputy described. We will engage on this constructively. I thank the Deputy for raising this important issue.

Question No. 40 replied to with Written Answers.
Question No. 41 answered with Question No. 34.