Digital Tax costs Ireland €160 million per year
The tax will cost Ireland 160 million euros per year. This raises questions about the future pace of FDI to Europe, and to Ireland. Of greater significance are the EU rules for establishing a digital permanent establishment (PE). New proposed rules to tax digital businesses could hurt Irish corporate tax revenues. If a big player with European headquarters in Ireland pays this levy, then they can count it as an expense against the taxes they declare 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 revenues of €5 billion and revenue allocation across EU Member States by population. The digital tax will cost the Minister of Finance between €120 million and €160 million annually. The resulting taxable profits will be taxed at the rates applicable in Ireland.
EU decision is a violation of Irish sovereignty
A digital services tax paid for doing business outside of Ireland may be levied against CT Ireland. Ireland will get €45 million if the tax is reallocated proportionally to EU member states based on population. If a big player with European headquarters in Ireland pays this levy, then they can count it as an expense against the taxes they declare in Ireland. The introduction of the digital services tax provides high-profile technology companies to a new profit tax base, therefore the DST costs associated with those revenues are fully deductible. The increasing tax rate differential between the Irish corporate tax rate of 12.5% and the corporate tax rate with DST among member countries affects the shift in profits from Ireland. EU Member States choosing their own tax system and non-EU countries seeking to maximize tax revenue will result in a seismic gain shift away from Ireland.
Erosion of Ireland’s tax base and transfer of profits
Profit shifts are common in the collective agreement and correlative adjustment procedures in Ireland. Ireland and several other member states have alleged that direct taxes do not fall within the competence of the European Commission. The Commission is moving towards tax harmony where it is necessary to prevent, limit 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 amend digital permanent establishment rules, along the proposals set out in the proposed directive with respect to significant digital presence. In both cases, the implication is that the effective tax rate on non-US digital corporate profits will increase and Irish corporate tax revenues will be eroded. Taxes may no longer be a compelling reason for global companies to invest in Ireland.
