11/11/21

IRELAND: ‘Risk’ multinationals could leave over tax changes, says Paschal Donohoe.

As published on independent.ie, Thursday 11 November, 2021.

There is a “risk” of multinationals shifting their assets out of Ireland as a result of corporate tax changes, the Finance Minister has said.

“I wouldn’t, at this point, attribute it as a large short-term risk, but it is certainly a medium-term risk that is there,” Paschal Donohoe told the Oireachtas finance committee on Wednesday.

He said the move could be triggered by domestic tax changes in “larger economies” or the finer details of a global deal agreed last month by the Organisation for Economic Cooperation and Development (OECD).

“It could also be driven by those who have registered IP in our country losing confidence regarding how it could be taxed in the future, and that would be as a result of domestic decisions that could happen here,” Mr Donohoe said.

The government has estimated a €2bn annual loss to the public finances by 2025 as a result of the OECD deal.

The potential loss of IP assets to other jurisdictions is “captured” in the €2bn estimate, the minister said, adding that it’s “a risk that we need to be aware of”.

However, a secret memo prepared for Cabinet earlier this year said the €2bn estimate might be too low.

After the last round of OECD tax changes in 2015 – which targeted zero-tax jurisdictions – many multinationals shifted software patents and other intellectual property (IP) assets to Ireland.

Revenue data shows corporation tax payments by multinational companies claiming capital allowances on IP assets doubled from 2019 to 2020.

Corporation tax revenue surged by 156pc between 2014 and 2020, coming in at just under €12bn last year.

It now makes up around a fifth of all tax receipts, up from a tenth six years before, according to the Central Bank.

The OECD deal reallocates a portion of large multinationals’ taxing rights to countries where they make their sales, and sets a 15pc minimum rate for a larger swathe of corporates.

The European Commission intends to legislate for the 15pc rate by mid-December, but a deal will require the unanimous approval of all 27 EU finance ministers.

The finer detail on the reallocation of taxing rights will not be known until next year.