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The European Commission's proposal for a common consolidated corporate tax base is "not acceptable to Ireland," Irish Finance Minister Michael Noonan has said.
In a speech to the Irish Times' International Tax Event, Noonan said that the proposal "does contain some interesting ideas." He said he agrees with the view that research and development can be supported by the tax system, and that the case for providing tax relief for equity investment in a business should be examined further, while the CCTB proposals on tax avoidance have been agreed in the EU's Anti-Tax Avoidance Directive.
However, Noonan is concerned about the fiscal impact of the CCCTB. He said that the Commission has acknowledged that the CCCTB "would involve a significant tax cut for multinationals operating in Ireland by significantly narrowing our tax base." He explained that under the Commission's fiscal rules, "this tax cut would have to be paid for by raising other taxes or reducing spending," while any increased economic growth as a result of the CCCTB "could not be considered in drawing up a Budget that complies with the fiscal rules."
Noonan noted that Ireland has three rates of corporation tax: the headline 12.5 percent for trading profits; 25 percent for non-trading profits; and 33 percent for capital gains.
"While CCCTB does not require a harmonization 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," he argued.
Noonan said that Ireland will engage fully in discussions on the CCCTB proposal, while assessing whether the scheme is in its best interests. "Taxation remains an area for unanimous decision making at Council, as laid out in the Treaties. Ireland continues to disagree with any harmonization of tax rates, minimum levels of taxation, or the inappropriate encroachment of state aid rules into the core member state competence of taxation," he stressed.
Noonan also addressed how wider international developments could impact on the competitiveness of Ireland's tax offering. He acknowledged that US tax reform is more likely following Donald Trump's election to the Presidency, and that a lower corporate tax rate is expected to be the centrepiece of any reform.
Nonetheless, Noonan urged that "speculation that such a move would be detrimental for Ireland is premature."
"Ireland's 12.5 percent rate will remain highly competitive and Ireland will remain an attractive location for US companies … to invest," he said.
Turning to the effects of the UK leaving the EU, Noonan said the resulting tax challenges "will require Ireland to retain its sovereign flexibility on tax matters."
He explained: "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."
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