Paradigm shift towards digital tax could cost Ireland £160m

The digital tax will cost Ireland €160 million a year

The tax would cost Ireland €160 million a year. It raises questions about the pace of future FDI in Europe and in Ireland. Of more importance are the EU rules for establishing a digital permanent establishment (PE). Proposed new rules to tax digital companies could hurt Ireland’s corporate tax revenue. If a big European based player in Ireland pays this tax, he could count it as an expense against the tax he declares in Ireland. For the EU, a fair global tax system will ensure greater transparency and sustainable development. The Irish government’s position is that corporate tax reform should be incorporated into the multilateral system. The European Union estimates tax revenue of 5 billion euros and the distribution of revenue among EU Member States based on population. The digital tax would cost the Treasury between 120 and 160 million euros a year. The resulting taxable gains are subject to tax at the rate applicable in Ireland.

The EU decision is an invasion of the sovereignty of Ireland

Digital Services Tax paid for doing business outside of Ireland can be deducted from Irish CT. Ireland would get 45 million euros if the tax were proportionally reallocated to the member countries of the European Union based on population. If a big European based player in Ireland pays this tax, he could count it as an expense against the tax he declares in Ireland. The introduction of the digital services tax gives high-profile tech companies new tax bases on earnings, therefore the DST charge related to such income is fully deductible. The larger difference in tax rates between Ireland’s corporate tax rate of 12.5% ​​and corporate tax rates with a DST between member countries affects Ireland’s profit shifting. EU member states choosing their own tax systems and non-EU countries seeking to maximize tax revenue would result in a seismic shift in benefits from Ireland.

Irish tax base erosion and profit shifting

Profit shifting already prevails in the mutual agreement procedure and correlative adjustment in Ireland. Ireland and some other member states have argued that direct taxation is not the responsibility of the European Commission. The Commission is moving towards fiscal harmony where necessary to prevent, restrict or distort competition in the internal market. EU member states and non-EU member states will introduce new digital tax policies and, at the same time, change the digital permanent establishment rules, along with the proposals set out in the proposed directive regarding a significant digital presence. In either case, the implications are that the effective tax rate on non-US profits from digital companies will rise and Irish corporate tax revenue will erode. Taxes may no longer be a compelling reason for a global company to invest in Ireland.