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Sunday 20 August 2017

Dan White: New 'Google Tax' could cost Ireland billions each year

An iPad showing the Google search engine home page
An iPad showing the Google search engine home page

In recent days Taoiseach Enda Kenny criss-crossed the United States, working the Irish-American lobby hard in advance of his White House meeting with President Barack Obama.

But maybe Mr Kenny should have travelled east rather than west this year. Today is budget day in the UK. Chancellor George Osborne will deliver his budget to speech to the House of Commons at 12.30pm.

In this, the final UK budget before next May's general election, Mr Osborne is widely expected to introduce a new "diverted profits tax" - dubbed the "Google tax".

This new tax will be aimed at multinationals that route profits made from doing business with UK customers through low-tax countries such as Ireland.

unnoticed

The Google Tax will allow the UK taxman to determine whether or not a company has artificially diverted profits to a low-tax destination. If he does then those profits will be taxed at 25pc rather than at the UK's standard 20pc corporate tax rate.

Despite having been first announced in Mr Osborne's Autumn Statement last December, reports of an impending Google Tax has gone largely unnoticed on this side of the Irish Sea.

Instead, our leaders have carried on as if nothing has changed. Speaking in Atlanta last week, Mr Kenny told a gathering of businesspeople that Ireland's 12.5pc company tax rate "won't and can't be changed".

The Taoiseach's statement came as no surprise. Even the immediate aftermath of the 2010 EU/IMF bailout this Government fought tooth and nail to successfully defend the 12.5pc company rate from our European 'partners'.

Unfortunately, as the Google Tax is about to show, there is more than one way of skinning a fiscal cat.

While large European countries such as the UK, France and Germany may not be able to force us to give up the 12.5pc company tax rate they can, through measures such as the Google Tax, render it largely irrelevant.

What the Google Tax is pointing towards is a future where the big countries tax the multinationals on the basis that their profits in that country as a proportion of their total global profits is the same as the proportion of their sales to customers in that country to their worldwide sales.

If, or more likely when, this comes to pass then it doesn't matter what Ireland's company tax rate is. Any tax savings in this country will be recouped elsewhere.

Just for good measure, Mr Osborne is reported to be preparing another twist with profits judged to have been "diverted" hit with a 5pc tax surcharge. Nasty. All of this is very bad news for Ireland.

More than 160,000 people, almost one-in-ten of those with jobs, are employed directly by the multinationals. The Exchequer is also heavily reliant on the multinationals with an estimated €15bn of the €20bn collected in Corporation Profits Tax between 2008 and 2012 coming from them.

While precise figures aren't available for 2014, most analysts reckon that about €3.2bn of the €4.6bn collected came from the multinationals.

Put it another way. If the tax take from the multinationals suddenly dried up then the Government would have to hike the €4bn a year it rakes in from Universal Social Charge by 75pc to €7bn.

threat

This would see most workers having to pay a USC rate well in excess of 10pc on their earnings. It doesn't even bear thinking about.

What has been the response of the Government to this existential threat - one that could see the decimation of the tax base and the loss of hundreds of thousands of well paid jobs?

Instead of responding to this new challenge the Taoiseach and his Ministers appear to be generals fighting the last war, with their repeated assurances that the 12.5pc tax rate is "safe".

Mr Kenny and his Cabinet colleagues need to wake up fast.

In the era of the Google Tax it is no longer enough to merely maintain the 12.5pc tax rate and watch the multinationals flow in.

The global mobile investment game has changed fundamentally. Unless we respond quickly Ireland will end up losing big time.

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