Threat to Irish tax take from EU proposal to levy digital giants

A European Commission proposal to impose a special tax on the sales of big digital companies in the European Union threatens to hit Irish corporate tax revenues and lessen the attraction of our 12.5 per cent tax rate.

EU leaders are to discuss the proposal to impose an interim digital services tax at a summit meeting next week, with European tax commissioner Pierre Moscovici saying he expects Ireland to play a positive role in the negotiations.

Europe must “act fast” to secure a common approach, Mr Moscovici said after yesterday’s Ecofin meeting in Brussels. “The tax system we have today is based on an economy we don’t have any more,” he added.

Ireland is opposed to the proposals for a digital services tax, which is being put forward by Brussels as an interim solution, pending more far-reaching reforms.

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The tax would be levied on revenues from targeted advertising and from charging users for the use of digital platforms, at a rate expected to be between 1 and 5 per cent. It would mean more tax being paid in big consumer markets in France and Germany and less in Ireland.

Payments made could be written off as an expense against corporation tax, threatening Irish revenues.

International focus

European Commission sources argue that Ireland cannot credibly keep saying “no” to reforms in this area. Mr Moscovici noted that he had defended Ireland when it was accused of being a tax haven for multinationals, though commission sources argue that there is an international focus on Ireland’s regime.

EU tax changes must be agreed by unanimity, meaning Ireland could veto the move.

"The commission has accepted that this is a relatively unscientific tax grab, pending a more evidence-based analysis by the OECD," said Feargal O'Rourke, managing partner of PwC. "This will cost the Irish exchequer tax revenues. It will be interesting to see whether we invoke our veto."

The EU's interim proposal could lead to "to double taxation, uncertainty and disputes," warned Cora O'Brien, head of policy at the Irish Tax Institute and, despite being a temporary measure, could be hard to reverse.

The measure would "reduce Irish tax revenue and also diminish the attractiveness of our 12.5 per cent corporation tax rate" to US digital players, according to Peter Vale, tax partner at Grant Thornton, who said the proposal was "bad for Europe and bad for Ireland".