A new International Tax Framework must enable growth in all economies and give certainty to business, says the Irish Tax Institute

The Irish Tax Institute believes the OECD’s Inclusive Framework offers the best opportunity of reaching agreement on global tax reform. “For that reason, we welcome the re-engagement of the US administration in the current process which, we hope will lead to a breakthrough in the long running negotiations by the OECD’s deadline of July this year,” said Institute President, Sandra Clarke.

Speaking in advance of this afternoon’s International Taxation Seminar hosted by the Department of Finance, Ms Clarke said there was a need to reassert a principles-based approach to the reform process.

“Amid the flurry of developments in international corporate tax reform in recent weeks, it is useful to go back to the principles agreed by the OECD in 1998 to guide its reform efforts at the beginning of this process. These principles included efficiency, certainty and simplicity, effectiveness, and fairness. They remain the tax policy considerations that should underpin a sustainable and effective global tax system.”

Governments all over the world are currently under pressure to raise revenue to pay the enormous cost of protecting citizens during the pandemic and, in many instances, coming to the rescue of private businesses. “Attention, understandably, has focussed on finding ways of raising more taxes on business. A more sustainable approach to the current crisis would be to focus on returning growth to those parts of the world economy worst hit by the pandemic,” argued Ms Clarke.

She said the Tax Institute strongly believes any new international tax framework must have at its core the aim of fostering the economic activity and investment that would provide governments with the revenue they need to fund public services for citizens. It must also enable economies to make the transition to carbon neutrality by facilitating and incentivising the innovation required to meet agreed decarbonisation milestones by 2050.

“The last five years have seen significant changes to international tax through the BEPS process and the implementation of the Anti-tax Avoidance Directives in the EU. The Corporation Tax Roadmap Update, recently published by the Minister for Finance shows just how much progress Ireland has made in reforming and modernising our corporation tax system in recent years.”

But, to create jobs and to provide revenue for the Exchequer, Ms Clarke said businesses need certainty and clarity. “That is why a multilateral approach to tax reform is the best way forward. In that regard, it is crucial that the system that emerges from the OECD reform process is clear and easy to implement. Complexity in tax increases the cost of compliance for business and the administrations costs for governments. It can also lead to mismatches with unintended consequences that may reduce the yield.”

The world economy has changed beyond recognition in the century since the current system of international corporation tax was agreed. And it is not just technology that has driven that change. “Small economies, like Ireland, with few resources have developed policies to increase their competitiveness as trading nations. And tax has been an essential part of their tool kit,” she said.

“It would surely be a retrograde step if the outcome of the global tax reform process were to disadvantage smaller economies. In a world dominated by large, powerful economies, it is essential that legitimate and proportionate tax competition continues to be an option for smaller economies. A new system of international corporate tax must accommodate the legitimate aspirations of all countries for their citizens, irrespective of their size or level of economic development,” concluded Ms Clarke.

For further information, please contact Cathy Herbert.