Dublin could lose up to €2bn of its corporation tax revenue under new proposals to reform the global tax system, minister for Finance Paschal Donohoe has warned.
From 2022 onwards, with the implementation of new tax rules under the OECD's Base Erosion and Profit Shifting (BEPS) initiative there will be a reduction in corporation tax receipts by an incremental €500 million per year.
While there is some uncertainty surrounding this figure, it is the department's best assessment, based on ongoing work being carried out by the Revenue Commissioners, that the overall risk could be in the range of €800m to €2bn. At the top range, this would remove roughly one-fifth of corporation tax receipts, based on last year's figures.
Changes to international taxation are on the way"
"While there is some uncertainty surrounding this figure, it is the department's best assessment, based on ongoing work being carried out by the Revenue Commissioners, that the overall risk from Beps [Base erosion and profit shifting]-related changes could be in the range of €800m to €2bn," Donohoe said.
Ireland plans to run a budget surplus, as "the best way of de-risking our economy and our public finances from the shocks that, as a small open economy, are likely".
"Changes to international taxation are on the way", he said. "We have no control over this and we must prepare for this. This is why we need surpluses," Donohoe added.
The BEPS project, which has been in development since 2013, envisages changes to the international rules on nexus, permanent establishment, cross-border taxation, transfer pricing, anti-avoidance and minimum tax rates, to prevent multinational enterprises shifting profits earned from customers in developed countries into low-tax or no-tax jurisdictions.
It is now in the final negotiation stages, with agreement expected at G20 level by the end of this year, and implementation of BEPS measures to be phased in from 2021 onwards.
Corporation tax is currently Ireland's third biggest tax category behind income tax and VAT.