Katherine Zappone has broken ranks with her cabinet colleagues and become the first minister to publicly back EU tax proposals that are expected to cost Ireland hundreds of millions a year if introduced.
Ms Zappone, the minister for children and youth affairs, supported a plan to introduce a common consolidated corporate tax base (CCCTB) across the EU. The Economic and Social Research Institute estimated that it would have cost Ireland as much as €400 million if applied to last year’s tax take.
The first part of the proposals — establishing a common tax base — seeks to give companies one set of rules with which to calculate their taxable income across Europe.
The second part aims to have multinationals file a consolidated tax return that reflects their activity across the entire EU as opposed to filing a return with each individual member state, as is the case at present.
The system would link the amount of taxes due to each state with the company’s level of sales, jobs and fixed assets in that country.
This methodology would likely reduce Ireland’s tax take given that the vast bulk of companies’ sales take place outside of the Irish market, which is comparatively much smaller than that of other member states.
The commission’s proposals do not seek to change member states’ individual tax rates.
Michael Noonan, the finance minister, said that a consolidated tax base would significantly narrow Ireland’s tax base and result in tax hikes or spending cuts to make up the shortfall.
Enda Kenny warned last year that he feared the rules marked the first step towards harmonisation of corporate tax rates, which Ireland strongly opposes.
In an interview with The Sunday Times Ms Zappone said that she would welcome the consolidation of corporate tax rates throughout Europe if it reduced the role they played in competing for foreign direct investment. She also said that she was in favour of a consolidated tax base.
“If there is more transparency or if we are moving towards — and this is what I would like to see — a consolidated corporate tax base, I think that means taxation policies can be utilised less as a competitive tool,” Ms Zappone said.
“If the focus is taken off that, then we would have to compete in other ways. For example, we would have to start making maybe additional investments in education at third level or languages at primary level.”
Brian Hayes, Fine Gael MEP, said that Ms Zappone’s comments were at odds with the government’s position and reiterated his opposition to the proposals.
He added that the minister appeared to be conflating the issue of a consolidated tax base, which would be introduced under CCCTB, with a common EU tax rate, which is not in question.
“For ministers to be talking about things they don’t seem to be fully au fait with is a very dangerous concept indeed,” he said.
“I think we stick to the government’s position that we discuss the base and see if it’s workable.
“People need to talk with a bit more clarity when they’re speaking on these issues. The Irish government’s position — and it’s mine too — is that we’ll clearly sit down and discuss and talk with colleagues on the question of the base but there can be absolutely no acceptance of the principle of consolidation.”
He said that the proposals would create a “taxation hole” and called on the minister to outline how she proposed to make up the lost tax revenue.
“The acceptance of consolidation across the European Union is effectively the movement of taxes away from Ireland to other member states where their economic activity lies and of course the bigger member states want that — wouldn’t you?” Mr Hayes said.
He added that Ms Zappone’s suggestion that the state could invest more in education and languages if a consolidated tax base was introduced did not make sense because Ireland would have less tax revenue to reinvest in public services.
Ms Zappone claimed that the state was too reliant on income taxes because it had agreed to accept less tax from multinationals to attract them to Ireland. She argued that ordinary workers could be charged less tax if companies paid “even a wee bit more”.
Michael McGrath, the finance spokesman, said that Ms Zappone’s comments flew in the face of government policy and rejected the EU’s tax proposals.
“Any attempt to apply a uniform single corporation tax rate across all EU member states will be opposed by Fianna Fail”, he said.
“This is completely unacceptable to me and to my party. Fianna Fail will protect Ireland’s tax sovereignty, and our ability to set our own tax rates, at all times.
“Taxation policy is one of Ireland’s main mechanisms of driving investment into Ireland, and ensuring that Ireland continues to be a major beneficiary of foreign direct investment. This will not be up for negotiation. Minister Zappone is clearly going against stated government policy. Government ministers need to speak with one voice on this issue of crucial importance to our economic and enterprise strategy,” Mr McGrath said.
Seamus Coffey, an economics lecturer at University College Cork, told the Oireachtas finance committee in December the proposed common consolidated tax base was the single biggest threat to Ireland’s ability to attract and retain investment.
“It’s hard to imagine any reform — even unilateral US tax reform — posing a greater threat to the huge gains from Ireland’s most successful economic policy of attracting [foreign investment] than the proposed CCCTB,” Mr Coffey said.
Appearing before the same committee Ronan Hession, head of business tax at the Department of Finance, said that the proposals were unlikely to be introduced because of the detrimental impact they would likely have on a number of member states.
He added that they would do little to tackle tax avoidance, as the commission has suggested, but would significantly reduce the state’s control over domestic tax issues.