A wake-up call on global tax structures

The Organisation for Economic Co-operation and Development (OECD) – a group of the world's developed economies – has outlined a timeline for major change in global corporate tax structures. From September the OECD expects that new rules, designed to stop multinational companies from engaging in aggressive tax avoidance practices, by channelling profits to low tax areas, will begin to be introduced. The OECD's draft report is being sent to member governments for their views, before the organisation agrees a final set of recommendations. Ireland has much to fear from the planned reforms, and the Government has little time to influence the outcome.

Technology companies – such as Apple, Microsoft and Google – with major Irish operations, are most likely to be adversely affected. Many such multinationals employ a tax strategy that involves booking for profit in Ireland some sales made outside the country. This is done to maximise the benefit from the State's low corporate tax rate. According to the OECD report, The Tax Challenges of the Digital Economy , Ireland's share of the world's services exports of information and communications technologies (ICT) is the second highest in the world – larger than that of the United States. The OECD is proposing tax be paid where the economic activity takes place, rather than where the company is based.

If implemented, the consequences of the proposals for Ireland, both in lost tax revenue and lost employment, would be considerable and Ireland’s appeal as a base for foreign direct investment, a key driver of economic growth, would be greatly diminished. The Government has responded to international concerns about aggressive tax avoidance. Last October, it closed a legal loophole that allowed Irish registered companies to be stateless for tax residency purposes. Clearly, much more needs to be done, and with a greater sense of urgency: not least setting out the full implications for the Irish economy if the OECD’s proposals are adopted, unchanged.