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EU Suggests Ireland Broaden Its Tax Base

by Ulrika Lomas,, Brussels

21 February 2018

The European Commission has published its latest post-bailout report on the Irish economy, urging the Government to broaden the tax base and be wary on relying too heavily on volatile corporate tax revenue.

The Commission's report argued that there is "scope for a shift toward more sustainable sources of revenue."

The Commission noted that there remain risks of volatility in certain revenue streams. It said that "a high degree of volatility" in corporation tax revenue is one of the reasons why Ireland should look to broaden its tax base and build "fiscal buffers."

The report said that recent revenue-raising measures – such as the tripling of the stamp duty rate on commercial property transactions and the reduction in capital allowances for intangible assets – are not stable funding sources. It added that personal income taxes have overtaken VAT as the single largest source of tax revenue, and that the share of corporate tax as a proportion of total revenue has increased.

"Strengthening revenue from taxes on consumption and from recurrent taxes on residential property and less reliance on income taxes would… support the growth orientation of the Irish tax system," it suggested.

Elsewhere, the report pointed out a "large degree of unpredictability" related to "the activities of multinationals," and the external risks that could arise from potential changes to the international tax environment.

The Commission observed that the corporate tax take is "heavily dependent on a small number of taxpayers."

It said: "Recent reports of decisions by some large multinational companies to restructure their business in Ireland demonstrate that international tax reform may lead to changes in business models of multinationals. This highlights how Ireland's exposure to international tax changes and the concentration of corporation tax receipts among a fairly small group of companies remains a vulnerability, and how it is essential that the overall tax base is broadened."

The Commission added that a broader personal income tax base "would improve revenue stability in the face of economic volatility." It noted that the Government is currently exploring options for the amalgamation of the Universal Social Charge (USC) and Pay Related Social Insurance (PRSI) and cautioned that eliminating the USC would narrow the tax base. To recover the revenue lost would "require lowering the entry-point to the tax system via a reduction of the tax credits."

TAGS: tax | business | European Commission | value added tax (VAT) | Ireland | corporation tax | tax thresholds | tax credits | multinationals | tax rates | stamp duty | social security | tax reform | individual income tax | European Union (EU) | Europe

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