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Ireland Not To Blame For Low MNE Tax Burden: ITI

by Lorys Charalambous,, Cyprus

01 July 2014

Discussing the effective rate of corporate tax paid by multinationals in Ireland, Cora O'Brien, Policy Director at the Irish Tax Institute, said that Ireland cannot be expected to tax a multinational enterprise (MNE) on its global profits just because it is incorporated in Ireland.

O'Brien made the comments while addressing the Houses of the Oireachtas's joint sub-committee on global taxation, which met on June 17 to assess how best to calculate the effective rate of corporate tax on companies in Ireland. O'Brien said that the debate on Ireland's effective corporate tax rate ties into international debate on international tax rules being led by the Organisation for Economic Cooperation and Development in its base erosion and profit shifting work.

She said: "The Irish Government is playing its part in this process. We issued an International Tax Strategy last October, setting out our position on international tax and emphasizing the three key strands to our corporation tax strategy – Rate, Regime, and Reputation. We currently have a separate Irish consultation launched by the Department of Finance on 'BEPS in an Irish Context'."

"The Institute is also very engaged in this work. We highlighted many of the issues concerned in our Global Tax Policy Conference held last October in Dublin, we have made several submissions to the OECD, and we have met with Pascal Saint Amans, Director of the OECD's Centre for Tax Policy and Administration, at OECD Headquarters in Paris last month," she continued.

"I appreciate that there are many views on the international tax rules that exist at present and on corporate tax issues in general. The OECD, through its BEPS Project, is working with member countries on its action plan to address what [it has] accepted are outdated rules which have not kept pace with an increasing globalized and digitalized world," she added.

"The Department of Finance consultation gives Ireland and its stakeholders a forum in which we can make a real and honest assessment of all the issues relating to BEPS and the impact on Ireland and our future. Global investment is highly competitive and will always remain so; we must be acutely aware that other countries will look to fiercely highlight their own competitive tax advantages if there are perceived weaknesses amongst others."

"There are many strands to Ireland's overall tax strategy, from regime to rate and reputation. They must all receive the focus and attention which is warranted if we are to play our part in the BEPS process, but also if we are to make the best decision for Ireland and its future."

On calculating the effective corporate tax rate of a company, O'Brien said: "There is no single, internationally agreed, methodology in calculating effective rates of corporation tax for a country. As a result we have seen a variety of conflicting answers where different methodologies are applied to different data sources."

"Companies operating globally can have a combined low global effective tax rate, however you cannot attribute that rate to any one country - you cannot say that this is the effective tax rate of that country," she added.

O'Brien said that a company is only liable to be taxed in Ireland on the activities that are subject to Irish tax under rules that have been recognized and accepted not just in Ireland but by other countries internationally, and by the OECD. "Where a company is not Irish tax resident, Ireland can only legally lay claim to the tax that arises from relevant activity in Ireland," she said, besides making the following observations:

"A company may be incorporated in Ireland but the management and control of that company may be located elsewhere, which means that under Irish tax laws the company is not liable to Irish tax on the foreign income. Ireland's residence rules, which have been in place since 1922, would not be regarded as being unusual and would be consistent with many international countries and indeed the model OECD treaties."

"Taking an Irish incorporated company's total global tax bill and dividing it by its total global profit, in an attempt to estimate an Irish based effective corporate tax rate from it, is incorrect and distortionary. Trying to extrapolate an overall Ireland effective corporate tax rate from these company figures is also distortionary and incorrect."

"The effective corporate tax rate of a company is a mathematical computation; arrived at by virtue of the activity of a company and the application of the tax rules that are relevant to that exact activity in each jurisdiction in which the company operates," she concluded.

TAGS: compliance | Finance | tax | investment | business | tax compliance | Ireland | law | Organisation for Economic Co-operation and Development (OECD) | corporation tax | tax thresholds | tax authority | agreements | multinationals | legislation | transfer pricing | tax rates | tax reform | standards | regulation | Tax

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