Multinationals funneled € 27 billion through Ireland in 2016, report says

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Multinationals channeled 27 billion euros of profits generated in other countries via Ireland in 2016, according to a new study.

Research commissioned by the left-wing group in the European Parliament suggested that Ireland was the second largest beneficiary of so-called profit shifting in the European Union behind the Netherlands.

Profit shifting refers to the practice of shifting profits generated in one country to another to benefit from a lower tax rate.

The report by Czech academic and economist Petr Janský found that of the $ 1 trillion in profits “transferred to tax havens around the world,” 22% – or $ 215 billion – went to tax havens. which are EU member states.

By far, the Netherlands with $ 140 billion in profits transferred in 2016 was “the most important tax haven among EU member states,” he said, followed by Ireland with $ 28 billion. of dollars (27 billion euros) and Luxembourg with 18 billion dollars.

The report suggests that at least two-thirds (18 out of 27) of EU member states lose out because of profit shifting by multinationals.

Germany and France

Germany experienced the biggest profit drain in absolute terms, at $ 102 billion, followed by France with $ 91 billion. This was equivalent to 30 percent and 27 percent of their respective tax bases.

Relative to their corporate tax revenues – in addition to Germany and France – Lithuania, Poland, Romania and Italy are set to lose more than 15% of their corporate tax revenues because of profit shifting, he said.

The report notes that the reforms currently being discussed by the G7 and the Organization for Economic Co-operation and Development (OECD) aim “to turn the tide: tax havens would lose out while other countries would benefit”.

The first round of reforms centered on the reallocation of tax rights would benefit countries in which multinational companies are headquartered much more than other countries, according to the report.

However, by contrast, proposals for a minimum effective tax rate would benefit all countries in which multinationals “are economically active, having sales, assets or employees there, regardless of the country in which they operate. their headquarters, ”he said.

Corporate tax rate

The two pillars of the reform process forged by the OECD – that multinationals pay a higher proportion of taxes in the countries where they make profits, and the establishment of a minimum rate – have put pressure on the economy. Ireland which has a corporate tax rate of 12.5 percent.

Finance Minister Paschal Donohoe said the Republic could lose up to a fifth of its overall tax revenue if the proposals are passed.

The biggest fear, however, is that an effective minimum rate will undermine Ireland’s tax advantage and hamper future investment.

Mr Donohoe expressed reservations about the possibility of a global minimum corporate tax rate, suggesting that small countries “must be able to use tax policy as a legitimate lever to offset the advantages of scale, location, resources, industrial and real heritage, material. and a persistent advantage enjoyed by large countries ”.

The European Commission recently announced plans for a unified corporate tax code to prevent member states from competing on tax matters or offering so-called “sweetheart” agreements to businesses.

The commission’s plan follows a US proposal for a minimum rate of 21 percent on international profits of US companies, which is well above the Irish rate.

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