Good morning Ladies and Gentleman.
I would like to thank the Irish Times for inviting me to give the opening address at this event today.
Scene setter: Ireland Vs the World?
Ireland has a modern open internationalist economy.
In my time as Minister for Finance, and throughout my political career, I have seen Ireland engage in the World across every aspect of Irish life: culturally, socially, politically and economically. This has been a complex transition, but it has been a positive one.
Ireland was a founder member of the OECD in 1961, which has become the recognised international thought leader in tax.
For over forty years, Ireland has been a fully committed member of the European Union. Throughout that period we have made a significant contribution to the development of tax policy across Europe, while defending the core Member State competence in taxation, which is protected by the European Treaties.
The facts show our constructive engagement at the international table on tax, with matchless implementation of reforms ahead of many of our partner countries.
OECD BEPS: What has Ireland done?
It is certainly true that corporation tax reform is a priority issue at the highest political levels across the world. It is widely acknowledged that aggressive tax practices are neither sustainable from a tax point of view, nor acceptable from a societal point of view.
The international community has taken this challenge seriously. The OECD Base Erosion Profit Shifting process has produced a remarkable international consensus on the steps that now need to be taken to tackle aggressive tax planning and harmful tax practices.
The BEPS project as it is known, is now being implemented around the world. Ireland has committed to the BEPS process and will play its full part in implementation.
- We began by implementing Country by Country Reporting in Finance Act 2015 and many other countries have since followed suit.
- Ireland is committed to the highest international standards in tax transparency. Ireland has consistently attained the highest international rating on transparency and has been an early adopter of many new reforms emerging at international level.
- The BEPS multilateral instrument is close to being agreed by more than 90 countries. This will provide the mechanism for extensive changes to tax treaties globally. Ireland has played an active part in this work.
Ireland will continue to take actions needed to implement the BEPS reports. The review of Ireland’s corporation tax code, which was launched with Budget 2017, will include consideration of what further actions Ireland may need to take to ensure we are fully compliant with the OECD BEPS recommendations.
EU Member States acting together have taken significant actions to combat aggressive tax planning. The substantial achievements of the past year have proven that Member States can agree significant Directives that make international tax reform a reality.
The Anti-Tax Avoidance Directive was agreed by EU Finance Ministers in June. The Directive is an important step in efforts to combat aggressive tax planning across Europe. Member States agreed to five significant corporate tax anti-avoidance measures, three of which derive directly from the OECD BEPS process.
Ireland played a very active role in shaping the Directive. The Directive is now being transposed with a timeline that allows business to plan ahead and which should ensure that the EU acts consistently with the rest of the world.
Member States continue to debate further proposals on international tax reform. These include proposals on improving dispute resolution mechanisms and requiring the mandatory disclosure of aggressive tax schemes. Ireland is one of a small number of countries to already have a mandatory disclosure regime in operation and is in favour of improving dispute resolution mechanisms. Ireland is generally supportive of the need for co-ordinated EU action in these areas.
Common Consolidated Corporate Tax Base - CCCTB
The European Commission has also relaunched its proposal on the Common Consolidated Corporate Tax Base Directive and I would like to welcome Commissioner Moscovici here today.
The CCCTB proposal does contain some interesting ideas.
I certainly agree with the view that Research and Development can be supported by the tax system as I have done with our own Research and Development Credit. The proposal also makes an interesting case for giving tax relief for equity investment in a business, which is something which should be examined further. The CCCTB proposals on tax avoidance have already been agreed in the Anti-Tax Avoidance Directive and so I would expect that these will be enacted under that Directive.
There are a number of points which are more difficult.
We should be clear about the real fiscal impact of proposals like the CCCTB. The 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. Under the fiscal rules, this tax cut would have to be paid for by raising other taxes or reducing spending. 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.
As I have stated on many occasions, the choice of tax rates is an important sovereign competence of Member States. Ireland has three rates of corporation tax:
- 12.5% for trading profits;
- 25% for non-trading profits; and
- 33% for capital gains.
While CCCTB does not require a harmonisation of rates across Europe, it would require Ireland to choose just one of these rates. We would lose the flexibility to tax some profits and capital gains at a higher rate. This is not acceptable to Ireland.
These issues relate only to agreeing a common base. Though I won’t discuss them here, further complications arise in the area of consolidation.
Ireland will engage fully in discussions on this proposal while assessing whether it is in our best interests. Taxation remains an area for unanimous decision making at Council, as laid out in the Treaties. Ireland continues to disagree with any harmonisation of tax rates, minimum levels of taxation or the inappropriate encroachment of State aid rules into the core Member State competence of taxation.
Reform vs Competitiveness
It is not accurate to characterise international tax reform as a binary choice between growing your economy and doing the right thing.
The long-term direction for Ireland’s corporation tax policy has been to compete successfully from a position of legitimacy.
This balance is reflected in the Programme for Partnership Government commitments to:
- maintaining the 12.5% corporation tax rate and
- working with our international partners in tackling aggressive international tax planning through the OECD’s Base Erosion and Profit Shifting initiative.
The Government is committed to policy choices that support real jobs and investment. These are legitimate policies that foster and reward innovation and which play to Ireland’s strengths. They include:
- the 12.5 percent Corporation Tax rate,
- the Research and Development Tax Credit and
- the Knowledge Development Box as approved by the OECD.
Reputation is not only important to Ireland’s standing in the World and our ability to engage with other countries in a mutually respectful way. Reputation is also a proxy for certainty. By building our tax system around policies and principles that are recognised as best practice internationally, we can provide the stability and certainty that businesses at home and abroad are crying out for.
Other international forces
Ireland’s very strong cultural and commercial ties with the US and with the UK reinforce the importance for Ireland that the EU doesn’t depart from the BEPS consensus.
All indications are that US tax reform is more likely following the recent Presidential election. It remains to be seen what the shape of any US reform would take. A lower US corporate tax rate is widely expected to be the centrepiece of any reform. 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.
US reform which is consistent with the BEPS consensus could have benefits for Ireland. Improved US anti-avoidance laws which no longer enable companies to exploit mismatches in different tax systems could play an important role in clamping down on aggressive tax planning.
Regardless of how the US tax system changes, I will continue to ensure that Ireland’s regime is competitive and compatible for businesses operating globally.
Brexit also presents some tax challenges, which will require Ireland to retain its sovereign flexibility on tax matters. Many of these challenges will arise in respect of trade and customs issues. In the context of an all-island economy, and the large volume of both business and domestic traffic between both countries, it is imperative that any post Brexit solutions do not inhibit the ability of this to continue.
The Irish Government has been undertaking an extensive programme of engagement with all other EU Governments and the EU institutions, to outline our key priorities for the Brexit negotiations. These are the economic and trading relationship with the UK, the Common Travel Area, Northern Ireland and the future of the EU itself. This engagement is being intensified in 2017. The Government will continue to meet and engage with their EU counterparts over coming weeks to emphasise Ireland’s concerns and to ensure that they are fully reflected in the EU position once negotiations commence. This activity is reinforced by extensive engagement at diplomatic and official level. The Government is acutely aware of the potential risks and challenges for the Irish economy and will remain fully engaged on this aspect as the negotiations proceed.
In closing, I want to make very clear that this Government strongly supports global tax reform and our commitment to the OECD BEPS reforms remains strong. This has been proven by our track record of taking action over the last number of years. Business is global in nature and therefore tax reform must continue to be global in scope.
Over the coming years, Ireland will continue to bring forward the necessary changes to meet our international commitments by the required deadlines, while ensuring that we remain competitive and responsive to changes in our environment. At times of uncertainty and change, we have shown ourselves to be sure-footed. We remain confident that our core offering remains competitive and robust.
But we should not underestimate the potential challenges that lie ahead. We will continue to enhance our corporation tax regime to ensure that we can compete from a position of legitimacy. I will continue to bring forward Budget measures which are competitive and attractive for business and in line with internationally agreed standards.