Reform of global corporate tax system long overdue

It is impossible to develop long-term solutions to global poverty and inequality as long as the current scale of corporate tax avoidance continues to drain financial resources from low-income countries – resources which should be used to provide essential services such as health and education.

We recognise that Ireland has made some reforms to address corporate tax avoidance – however, these measures have not gone far enough to address the scale of tax avoidance facilitated by the State’s current corporate tax regime. There is clear and growing evidence that Ireland is still acting as a ‘conduit’ and facilitating large-scale tax avoidance. A recent Oxfam report entitled Off the Hook established that royalty payments sent out of Ireland were equivalent to 23 percent of the country’s gross domestic product in 2017. This equates to more royalties than sent out by the rest of the EU combined and makes Ireland the world’s No.1 royalties’ provider. With these payment levels far exceeding normal economic activity, this indicates that a jurisdiction is facilitating tax avoidance.

Corporate tax avoidance negatively impacts efforts to reduce global poverty reduction. The UN estimates that developing countries lose around $100 billion annually due to corporate tax avoidance. This deprives developing countries of vital revenue needed to provide the health, education and infrastructure that lift people – especially women – out of poverty. Increasing attention has also been drawn to how tax avoidance and tax evasion negatively affect women’s rights and are detrimental to closing the gender inequality gap. In 2018, a UN Women report concluded that transnational tax avoidance and tax havens have negative effects on gender equality. The European Parliament has also recognised the harmful effect of tax avoidance and evasion on women in a 2018 report on gender equality and taxation policies in the EU.

Efforts to reform the global tax system are now taking place at the OECD, an approach which Ireland supports. These reforms are essential to finance the Sustainable Development Goals. Corporate income tax is essential for revenue raising in developing countries which are particularly exposed to profit shifting and tax competition. The Irish Government needs to engage constructively with this reform process at the OECD and ensure that the world’s poorest countries stop paying the price for an outdated global tax system.

Oxfam Ireland is calling on the next government to:

• Contribute to a second generation of international tax reforms by supporting a transformative international reform of corporate income tax. This would lead to an equitable rebalancing of taxing rights between developed and developing countries. The aim should be to find a solution for all economic sectors and not ringfence highly digitalised companies. This would ensure sufficient taxing rights for operations in consumer markets as well as manufacturing and natural resource operations. Redistribution of taxing rights should allocate profits based on corporations’ global activity and a combination of factors such as consumption, employment and production.

• Agree a global minimum effective tax rate at a fair level. The minimum effective tax rate should be set globally, applied on a country-by-country basis without carve-outs, and set at a high enough rate to effectively curb profit shifting. It should generate additional revenues where economic activity takes place.

• Require that all large multinational companies (MNCs) adhere to full and effective transparency by supporting efforts at an EU level to agree meaningful legislation on Public Country-by-Country Reporting. This would ensure that MNCs publicly report on a country-by-country basis where they make their profits and pay their taxes.

• Review and reform Ireland’s Double Taxation Treaties: Ireland should adopt the UN Model Double Taxation Convention between developed and developing countries (the UN model) as the minimum standard.