The Eurogroup and Ecofin meetings of finance ministers taking place on Monday and Tuesday between EU finance ministers have very full – and potentially explosive – agendas that deal with some of the biggest economic and political issues out there, from corporate tax to the fiscal effort needed to kicks tart growth in key European economies.
Let’s start close to home, with corporation tax. The roll-out of the BEPS agenda continues, and the Irish are insisting that others share the pain.
Having killed off the notorious Double Irish, Dublin now wants to ensure a level playing field. In their sights right now is the Dutch CVBV corporate construct.
Like the Double Irish, it is essentially an artefact of a bilateral tax treaty with the US, and so is really only of use to US companies, who duly use it to establish tax efficient holding companies in the Netherlands.
The Second Anti-Tax Avoidance Directive should put paid to the CVBV and a few similar schemes, such as the British LLP (limited Liability Partnership), known as Hybrid Mismatches in BEPS speak.
To what extent have the Irish poachers turned corporate tax gamekeepers now that the phase-out of the Double Irish has been legislated? Well, put it this way – we are working hand in glove with the French on this one.
As for the common consolidated corporate tax base, it’s trundling along in the background, with countries doing their own analysis of the numbers.
First out of the traps against it is Denmark. The previous version would have cost it 1% of GDP, and new version doesn’t seem to do much different.
As we have reported previously, the initial Irish view is that the Commission proposal reduces the taxable base in Ireland, by allowing more reliefs and exemptions (especially for R&D) than our system, which is grounded in the idea of applying a low rate to wide base.
Which means that if the base is narrowed, the rate would have to go up to get the same revenue.
As the 12.5% rate has been raised to the level of red hair and freckles in the official definition of Irish-ness, it’s difficult to see any government agreeing (or being able to agree) to the current text.
But for the moment the process is parked while the analysis continues.
As for the Trump presidency in the US, this should not be a big issue for the corporate tax regime in Ireland, as the money that washes through Ireland (and other places) without leaving much tax behind is ultimately taxable in the US.
The fact that it hasn’t yet been taxed is due to US corporates effectively going on strike against the US corporate tax rate of 35%, which is now the highest in the developed world.
Michael Noonan told us in the margins of the Department of Finance annual tax conference that the US treasury has lined up all the paperwork for a long awaited corporate tax reform, and with a triple whammy for the Republican Party (President, House and Senate), they have a window of opportunity for getting a reform done in the next 18 months.
The likely effect of this is to transform the money that is currently held “offshore” untaxed, into money that is brought onshore in the US and is taxed in the financial year.
It’s hard to see how this would alter current practice in relation to taxing the profits of US multinationals in Europe.