Dear Deputy lets talk Tax Certainty

Dear Deputy, The future jobs, tax revenues and economic growth that we expect to derive from Foreign Direct Investment are being put at risk due to recent movements by Revenue against the principle of tax certainty.

Tax certainty, which is the ability of an individual or entity to accurately and confidently assess and predict how much tax they will pay over a set period of time, is considered by both the OECD and the IMF to be one of the cornerstone principles of a fair and just tax system. Beyond that it is an integral principle for businesses, who must be able to tell how much tax they should pay in any given territory in order to accurately assess its suitability for investment, particularly long-term investment. A study of large, international investors, carried out by the Economist Intelligence Unit, stated that 87% of study participants rated fiscal certainty as important when making decisions as to FDI.

In countries in which tax certainty is part of the system it is possible for companies to invest large sums, over long periods, as they have the capability to trust that the territory in which they operate will deal fairly and justly with them. Ireland has historically held the principle of tax certainty as a key competitive advantage, which we have drawn on heavily in attracting Multi-National Corporations [MNCs] into the State. By positioning the 12.5% rate as a constant fixture of Irish political life, rather than merely as a low-rate of tax, the Irish state has been able to move beyond the idea of Ireland as a low corporate tax economy and onto the idea of Ireland as a place where you can invest for 30 years because you have certainty as to what you will pay on any investment. As the Taoiseach himself noted on his trip to Washington in March, where he was talking to the US Chamber of Commerce, “There are actually countries in the EU that have a lower tax rate than us…I think what we offer is certainty…and I think that gives investors or potential investors that certainty you need if you’re making the 20 or 30 year multibillion-euro investment in an economy. You want to know the fundamentals of those policies are going to stay the same.”

Unfortunately, recent developments in Ireland have undermined the principle, and the good work that the Irish state and politicians have done to uphold that principle. We believe these developments hold the potential to cause significantly harm, both reputational and economic, to Ireland.

We are aware of multiple recent instances in which Revenue has upwardly reassessed the tax payments of an MNC, despite those companies having paid tax at an accepted rate for years without Revenue raising any issues with their payments, and which would therefore have a legitimate expectation they are paying the correct rate of tax. In some of these instances, the MNCs in question reached out to Revenue and requested clarification as to why their tax payments were reassessed, and were simply told that Revenue would provide no further information and that the MNCs could appeal the decision if they so wished.

Here we are not talking about companies which have obviously tried to defraud or short-change the Irish taxation system, in which case the upward reassessment may have been a legitimate and reasonable response, but rather companies who have acted in good faith, who sought direction and advice in order to be tax compliant and now face a bill for “underpayment” along with interest and penalties. This is not due to an error on their part, but rather because Revenue simply changed its mind as to how their taxation should be paid

Two recent examples of this are Analog Devices, who employ 1,200 people in Limerick, being served with a notice of assessment for €43 million and Perrigo, which is headquartered in Dublin as a result of acquiring Elan in 2013, and faces a fine of €1.6 billion. Both of these cases are under appeal.

This new, aggressive approach to upward reassessment of previously paid taxation has not gone unnoticed abroad. The Hill, an influential paper covering Washington and American political affairs, has covered the issue, in a manner frankly not beneficial to Irish interests, and we in the EBI have fielded multiple queries from American think-tanks and individuals concerned that Revenue’s new behaviour could be harmful to American MNCs headquartered within Ireland and who are concerned about the potential impact of this behaviour on planned expansion and job creation.

The Fiscal Assessment Report published earlier this month by the Irish Fiscal Advisory Council highlighted the dependence of the Irish state upon a very small number of corporate entities, with the ten largest corporate entities paying €5 billion of the total €10.4 billion gathered in corporation tax receipts in 2018. That of course doesn’t include the impact of the 229,057 people directly employed by multi-nationals, 58% of whom are based outside Dublin. As Minister Donohoe very correctly pointed out in 2016, “One in five workers in the private sector work for companies that are located here in Ireland due to foreign direct investment.”

Given the scale of employment by MNCs Revenue’s movements against tax certainty are not merely harmful to MNCs, but rather represent a real and tangible threat to the livelihoods of Irish men and women, all across the country. Revenue’s newfound vigour for unorthodox and aggressive reassessments has undermined a key competitive advantage of this country, an advantage which played a substantial role in the prosperity that this country has achieved over the past decades, and an advantage which politicians, of all political stripes, have fought hard to ensure remained in place.

Our concern is that Revenue has been moving, and will continue to move, towards a position which is harmful to Irish interests, Irish economic growth, and offensive to the principles that should underpin a just and equitable taxation system, both for corporate entities and for private citizens.

Standing as we are on the edge of a No-Deal Brexit, and aggressive tax moves from President Trump to encourage repatriation of US companies overseas, that Revenue should now seek to pursue a policy which undermines our hard-won reputation as one of the most attractive countries in the world for large-scale long-term investment, would seem to be short-sighted and deeply misguided

The Board : Edmund Burke Institute