A “forced change” in the corporate tax rate in Ireland could prompt companies to reassess their commitment to Ireland and move their operations to other jurisdictions, a new report has warned.
In an assessment of the likely impact of global tax reforms on Ireland, debt rating firm DBRS Morningstar, however, describes the risks to the state as “remote” while noting that Ireland benefits from important non-tax advantages which should keep it competitive.
He said the proposed changes being considered by the Organization for Economic Co-operation and Development (OECD) and the G20 were based on two distinct pillars – a reallocation of tax rights and an overall minimum rate, “each with possible varying effects. on Ireland’s budget, its existing capital and future direct investments ”. Consensus will be difficult to reach and implement, however, he said.
As part of the first pillar of OECD reforms, a proportion of profits booked in Ireland would be reallocated and inevitably reduce Irish corporate taxes, DBRS said, noting that the Irish government had already budgeted € 2 billion. of losses resulting from this.
An overall minimum rate – set at 15%, envisaged in the second pillar, will be “more substantial”, he said.
This would require companies domiciled in Ireland to ‘top up’ their tax contributions.
An attempt to accurately model how a new corporate tax regime would affect Ireland should reflect a full range of negative impacts, including those on employment and income.
Most impacting, a forced change in Ireland’s tax rate could cause companies to reassess their commitment to Ireland and move business or intangibles to other jurisdictions that do not comply with the news. global minimum standards, ”he said.
“The exit of a handful of large multinationals could have a big impact on the rest of the economy,” he said.
The company cites a recent study by the Irish Fiscal Advisory Council (Ifac), which warned that a “pillar 2 shock” involving five large multinationals relocating their operations outside Ireland could result in a loss of direct tax. on companies of 3 billion euros and a loss of 5,000 jobs and 15,000 indirect job losses, leading to increased unemployment and emigration.
In its report, DBRS also warned that the concentration of corporate tax revenue in just a handful of companies – more than 50 percent of revenue comes from just 10 large companies – exposes the Irish Treasury to fiscal risks.
“This makes it difficult to forecast revenues and fund ongoing expenses. These concentration risks are amplified by ongoing efforts to reform the global corporate tax landscape, ”he said.
Nonetheless, he called the state’s corporate tax base “resilient”. He also noted that “years of significant tax revenues from the multinational sector have been helpful in restoring the government’s public finances after the global financial crisis”.
DBRS also concluded that Ireland enjoys significant non-tax benefits which should keep it competitive, even if the reforms result in more significant structural changes in the Irish economic model.
He highlighted Ireland’s highly skilled workforce, its use of the English language and common law, unhindered access to the European Union and its favorable climate for doing business.