NEW PROPOSALS ON the taxation of the digital economy would “fundamentally” affect large multinationals based in Ireland, Chartered Accountants Ireland said today.

The Organisation for Economic Co-operation and Development (OECD) yesterday released a discussion document on “addressing the tax challenges of the digital economy”. In it, several options for dealing with what is seen as large scale tax avoidance areoutlined.

The report by the Paris-based body pegs Ireland as the second largest exporter of ICT services, behind India but outstripping the United States, Germany, the United Kingdom and China.

Read the report in full here

One option outlined for levelling a more effective tax burden on multinationals offering “fully dematerialised digital activities” involves determining establishment of a company for tax purposes if it maintains a “significant digital presence” in a country’s economy.

This would include having a significant customer base or retaining data from customers located in a particular jurisdiction.

In effect, this could result in Britain or France targeting a digital company which has offices in Ireland if a significant amount of users are British or French.

Proposal could hobble Irish system

The CAI blasted this proposal, saying that it “would be akin to taxing our agriculture products where they are sold, rather than where they are grown”.

CAI tax director Brian Keegan said:

These proposals, which are a key element of a larger project to revise the way multinational companies are taxed, would fundamentally change the business model for companies based in Ireland.

(They) would move company profits away from where value is created, in countries like Ireland, to locations where products are sold-principally the major European countries

The CAI said that due to its position as a major exporter of information and communication technologies, Ireland “could be the biggest loser” in terms of our corporation tax rate.

Ireland’s low corporation tax rate of 12.5 per cent has often been in the crosshairs of larger European countries.

Keegan urged Irish businesses to engage with the OECD paper, which is open for public consultation until the 14 April. He said: “We need the commercial point of view to be fed into these proposals before they become concrete to the detriment of Irish business and Irish taxpayers generally.”

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