Noonan says new EU tax rules would deliver a 'significant' hit to Ireland's haul

NEW EU RULES that aim to clamp down on multinationals’ aggressive tax avoidance are expected to “significantly” narrow Ireland’s tax base.

That is according to Finance Minister Michael Noonan, who also said that speculation that Ireland will be hit by the US cutting its corporate tax rate is “premature”.

Speaking at the Irish Times tax summit in Dublin today, Noonan hit out at the EU’s plans to introduce a Common Consolidated Corporate Tax Base (CCCTB).

As previously explained by Fora, the CCCTB is a tax reform plan that the EU is trying to introduce that is split into two key parts.

The first section, relating to a common ‘base’, would mean that a company would have to comply with just one EU system for working out its taxable income, rather than looking at different rules in each EU member state in which they do business.

The second key part is the ‘consolidated’ base. Under this part of the proposal, companies with operations across several different EU member states would file a single, ‘consolidated’ tax return with one administration for their entire activity within the EU.

On the basis of this tax return, any tax paid by the business would then be shared out among the member states in which it is active.

Taxes would be shared out on the basis of where a company has its employees, where its physical operations are based and where its sales are made.

This would likely prove damaging for Ireland. At the moment, Ireland can attract a disproportionate amount of corporate tax from foreign firms that route sales for Europe and, in some cases, other territories thought the country, even if they do not have large operations here.

Irish corporate tax

Speaking today, Noonan said: “We should be clear about the real fiscal impact of proposals like the CCCTB. The (EU) commission’s own analysis of the proposal does not sit well with the fiscal rules.

“The commission acknowledges that the CCCTB would involve a significant tax cut for multinationals operating in Ireland by significantly narrowing our tax base.”

He added that, under the fiscal rules, this tax cut “would have to be paid for by raising other taxes or reducing spending”.

Ireland’s bumper corporate tax take has been increasingly relied upon to boost the public coffers, so any reduction would likely prove problematic for the government.

Finance Minister Michael Noonan

“Any increased economic growth as a result of the CCCTB, as predicted by the commission, could not be considered in drawing up a budget that complies with the fiscal rules,” he said.

US corporate tax

Noonan also acknowledged that a lower US corporate tax rate is widely expected to be introduced following the election of Donald Trump as US President.

However, he added: “Speculation that such a move would be detrimental for Ireland is premature.

“Ireland’s 12.5% rate will remain highly competitive and Ireland will remain an attractive location for US companies in which to invest.”

The introduction of a significantly lower tax rate in the US has been flagged as potentially deterring American firms from locating major operations in Ireland in the future.