Digital Tax to cost Ireland €160 million per annum
The tax would cost Ireland €160 million per year. It does raise questions about the pace of future FDI into Europe, and into Ireland. Of greater significance is the EU rules of establishing a digital permanent establishment (PE). The proposed new rules of taxing digital businesses could hurt the corporate tax revenues of Ireland. If a big player with European headquarters in Ireland pays this levy, then they could count it as an expense against the tax they declare in Ireland. For the EU, a fair global tax system will ensure greater transparency and sustainable development. The Irish government position is that corporate tax reform should be made into the multilateral system. The European Union estimates a tax revenue of €5 billion and allocation of the revenue across EU Member States based on population. The digital tax would cost the Exchequer between €120 million and €160 million every year. The resulting taxable profits are liable to be taxed at the applicable rate in Ireland.
EU’s decision an encroachment on Ireland’s sovereignty
Digital service tax paid for doing business outside Ireland may be set off against Irish CT. Ireland would get €45 million if the tax was reallocated proportionately to European Union member countries based on population. If a big player with European headquarters in Ireland pays this levy, then they could count it as an expense against the tax they declare in Ireland. The introduction of digital services tax gives high-profile tech companies to new profit tax bases, hence the DST charge related to such revenues are fully deductible. The increased tax rate difference between Ireland’s corporate tax rate of 12.5% and the corporate tax rates with a DST among member countries effect the profit shift from Ireland. EU Member States who choose its own tax systems and non-EU countries who are seeking to maximize tax revenues would result in a seismic profit shift from Ireland.
Irish tax base erosion and profit shifting
Profit shifting is already prevalent in mutual agreement procedure and correlative adjustment in Ireland. Ireland and some other member states have alleged that direct taxation does not fall within the competence of the European Commission. The Commission is moving towards tax harmony where it is necessary for the prevention, restriction or distortion of competition within 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 the proposals set out in the proposed directive with regard to a significant digital presence. In either case, the implications are that the effective rate of tax on the non-US profits of digital firms will increase and the corporate tax revenues of Ireland will erode. Tax may no longer be a compelling reason for a global enterprise to invest in Ireland.