The digital tax will cost Ireland 160 million euros a year

The tax would cost Ireland €160 million a year. It raises questions about the pace of future FDI in Europe and in Ireland. Of greater importance are the EU rules for establishing a digital permanent establishment (PE). New proposed rules for taxing digital businesses could hurt Ireland’s corporate tax revenue. If a major European-based player in Ireland pays this tax, he could count it as an expense against the tax he claims in Ireland. For the EU, a fair global tax system will ensure greater transparency and sustainable development. The Irish government’s position is that corporate tax reform should be incorporated into the multilateral system. The European Union estimates tax revenue of €5 billion and the distribution of revenue among EU Member States based on population. The digital tax would cost the Treasury between 120 and 160 million euros a year. The resulting taxable profits are subject to tax at the rate applicable in Ireland.

The EU decision is an invasion of Ireland’s sovereignty

Digital Services Tax paid for doing business outside of Ireland can be deducted from Irish CT. Ireland would get €45 million if the tax were proportionally reallocated to member countries of the European Union based on population. If a major European-based player in Ireland pays this tax, he could count it as an expense against the tax he claims in Ireland. The introduction of the digital services tax gives high-profile technology companies new tax bases on profits, therefore the DST charge related to such income is fully deductible. The larger difference in tax rates between Ireland’s corporate tax rate of 12.5% ​​and corporate tax rates with a DST between member countries affects profit shifting from Ireland. EU member states choosing their own tax systems and non-EU countries seeking to maximize tax revenue would result in a seismic shift of benefits from Ireland.

Irish tax base erosion and profit shifting

Profit shifting is already prevalent in the mutual agreement procedure and correlative adjustment in Ireland. Ireland and some other member states have argued that direct taxes do not fall within the purview of the European Commission. The Commission is moving towards fiscal harmony where necessary to prevent, restrict or distort competition in the internal market. EU member states and non-EU member states will introduce new digital tax policies and, at the same time, change the rules of the digital permanent establishment, along with the proposals set out in the proposed directive regarding a significant digital presence. In either case, the implications are that the effective tax rate on non-US profits from digital companies will increase and Ireland’s corporate tax revenues will erode. Tax may no longer be a compelling reason for a global company to invest in Ireland.