EU plan for digital tax ‘poses threat to Ireland’

(The Times) -- EU Commission proposals to introduce a digital tax on internet giants poses a bigger threat to Ireland than US tax reforms and will make the EU less competitive, it has been claimed.

The commission yesterday unveiled heavily leaked plans to introduce a 3 per cent levy on digital companies’ revenues as an immediate means of gathering more tax revenue across the EU.

The measure is expected to raise about €5 billion a year for the bloc but could cost Ireland up to €250 million in foregone tax revenue annually, according to estimates. The plan will target mainly US companies with worldwide annual turnover above €750 million, such as Facebook, Google, Twitter, Airbnb and Uber.

A longer-term tax based on where profits are generated as opposed to where the business has a physical presence was also floated yesterday. This proposal would also introduce a new way of splitting tax revenues between member states based on where its customers are located.

Peter Vale, a tax partner at Grant Thornton, said the proposals arguably run contrary to “general tax principles” which look at where the value creation takes place as opposed to where customers are based. “There is considerable work to do to convert customer data into something that can be profitability exploited, an activity that would not necessarily take place in the country of the customer.

“The digital tax proposals, if implemented, pose a threat to Ireland, arguably a greater threat than the recent US tax reform package. In our view, the OECD work on digital tax should be allowed develop further rather than implement a potentially damaging EU-only interim solution,” Mr Vale said.

The corporate tax rate in the US was cut from 35 per cent to 21 per cent last month. The government and IDA Ireland have insisted the changes won’t have a significant negative effect on Ireland’s ability to attract foreign direct investment from the US.

Foreign companies employ one in ten workers in Ireland.

The American Chamber of Commerce Ireland said the commission’s proposals would damage the EU’s competitiveness. “The chamber is most concerned about the damage that taxes on turnover could cause. Such levies target the turnover of digitalised enterprises without a link to either profits or the value creation in the jurisdiction where they are levied.

“The chamber will continue to strongly support the government’s position that promotes a multilateral approach to taxation over reactive and economically damaging unilateral measures,” it said in a statement.

Joe Tynan, head of tax at PwC, the professional services firm, said the digital tax was a crude levy on turnover that would result in loss-making companies being taxed on the same amount as very profitable firms with high margins.

“It is mostly US companies that will be subject to the tax. At a time of tension on international trade, this levy on turnover will not help,” he said.

Ian Talbot, chief executive at Chambers Ireland, said: “Any EU actions to depart from international tax norms could not only undermine Ireland’s competitiveness, but the EU’s.”

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