Originally posted in The Business Post, 28 June 2020The US had also very publicly pulled its support for the World Health Organisation and in more recent days it has sowed confusion as one of its representatives, Robert Lighthizer, said it was pulling out of OECD talks on a new global tax framework.More on that in a minute, but for now a question – is the momentum for international corporation tax reform as sponsored by the OECD on the wane?The organisation‘s work on the international corporation tax rules has a resonance with current public sentiment against the legacy of empires. The current cross-border corporation tax rules were formulated by the British Empire. The tax from great wealth being produced by corporations in the colonies was not ascribed to the colonies. Any company making its money anywhere in the British Empire had to pay its taxes in London and that was the end of the matter.International tax law has largely stuck with principles that result in tax being paid where the company is incorporated, managed and controlled. This might have been defensible in an era when it was made from digging stuff out of the ground and manufacturing products, but it is increasingly inappropriate in a world where goods are internationally traded and cross-border services are provided, the latter often without need for any physical movement of either people or goods. This is why the international debate has focused so much on how the digital economy should be taxed.The OECD's approach to overturning the colonial method of taxation involves two objectives, or “pillars” in the jargon. The first pillar focuses on the digital economy. Subject to terms and conditions, the idea is that the profits of some companies should in part be taxed where their products and services are sold. The businesses that would be caught include those which provide content streaming and online advertising, or remote sales of goods and services to consumers. The second pillar is that there should be an effective minimum rate of corporation tax payable by all companies irrespective of where they are located.With more than 130 countries involved in the OECD negotiating process, these objectives have garnered some momentum. If the process becomes fragmented, it could push countries to create their own new tax rules outside of an international consensus approach. The EU institutions are also susceptible to promoting rule change, overlooking the inconvenient reality that the EU does not have the power to establish a corporation tax regime for its member countries.It appears that the US position on the OECD discussions is considerably more nuanced than has been widely reported. Writing to the finance ministers of France, Spain, Britain and Italy just two weeks ago, Steven Mnuchin, the US Treasury Secretary, clarified that the pillar one ideas should, in the view of the US, only apply as a default taxing position when all else fails. He also pointed out that the world may perhaps have better things to be doing than agonising over international tax rules when it should really be focusing on economic issues resulting from Covid-19.He wanted pillar one discussions “to pause” with a view towards resuming later in the year. His assessment of where matters stand in relation to pillar two, the global minimum tax, was that discussions have progressed more rapidly and could be concluded by the end of the year.This assessment is reasonable given that the US has particular cause for concern over pillar one. Due to the American dominance of the digital industry, a significant amount of tax revenue could be displaced away from the US and into other countries. Therefore, as regards digital taxation, it is in the short-term interests of some economies to go it alone. If they do, the US has an answer for that as well.America has a process known as a section 301 investigation, somewhat similar to the EU's competition investigations. Some weeks ago the US opened section 301 investigations on the digital tax proposals of a number of authorities, including Italy, Spain, the EU itself and Britain. It appears that these so-called anti-trust investigations enjoy bipartisan support in the US and are likely to persist irrespective of who is in the White House in 2021. If a response is deemed necessary, the US has plenty of tax and trading remedies at hand to counter any country’s attempts to unilaterally levy tax from American owned companies.Despite the recent suggestions to the contrary, the OECD is still in the tax policy arena. Their processes may have slowed as a result of the recent US intervention, but they have not stopped. The current programme for government states that Ireland should continue to support OECD efforts to arrive at international consensus on taxing methods. Mnuchin‘s letter in combination with the new section 301 investigations suggests that the US is taking the same approach.Dr Brian Keegan is Director of Public Policy at Chartered Accountants Ireland

 Originally posted on The Business Post, 21 June, 2020The accusation that the proposed coalition of Fianna Fáil, Fine Gael and the Green Party represents no change hardly stands up to scrutiny. Indeed, I can't see how any coalition involving Fianna Fáil and Fine Gael constitutes anything other than significant change.The groundwork for this political structure was laid by the confidence and supply agreement which kept the last government afloat and which, thanks to Brexit, survived much longer than anyone might have anticipated.The programme for government published last week is not the direct descendant of the confidence and supply agreement. It is more like a younger sibling scarred from the experience of the Covid-19 pandemic. The programme does not propose that we repeat past mistakes and try to tax our way out of this recession.Confidence and supply depended on income tax to fund the system. This new programme for government will depend on PRSI and environmental taxes to keep the show on the road. The difference between income tax and PRSI is not mere semantics. If the revenue-raising policies as set out in this programme for government are followed as closely as was the case with the previous tax policies in the confidence and supply agreement, the Irish fiscal landscape will look considerably different in five years’ time.Despite the read-my-lips-no-new-taxes protestations, the new programme for government seems to take what could be quite a different approach to pay-related social insurance. PRSI is not tax. Rather, it is a levy which entitles those who pay it to certain state benefits which come out of the country’s social insurance fund. The charges and entitlements for employees compared to the self-employed are quite different. The emphasis on applying taxes and levies by reference to how income is earned rather than by reference to how much income is earned is one of the greatest inequities in the Irish tax system.To its credit, the last government went some way towards improving the PRSI benefits available to the self-employed, without hiking the 4 per cent rate that they were being charged. These improvements were relatively modest. However, the introduction last March of pandemic unemployment payments at the same rates for the self-employed as for employees was a game changer. If only because of their sheer cost, these benefits can only be temporary. It seems that there is a subtext in the programme for government that in future, equalised benefits will be funded from increased PRSI contributions.Increased PRSI contributions will also be required to resolve the pensions conundrum as contributory social welfare pensions are funded from PRSI. In a normal year, contributory social welfare pension payments make up nearly three-quarters of all the cash paid out by the social insurance fund. The state pension is currently payable from age 66, and if the current retirement age is to stick, increased PRSI becomes the most obvious source of funding.There have been signals that people might be willing to pay additional PRSI if they could secure additional PRSI benefits. In 2017, the Department of Social Protection carried out a survey of mostly self-employed people paying PRSI. Respondents rated cover for long-term illness, short-term illness and unemployment as the most important extra benefits to them.Almost four out of five said they would be willing to pay a higher headline rate of PRSI in return for extra benefit coverage. With the proposal in the programme for government to establish not just a “commission on taxation” but a “commission on welfare and taxation”, those wishes may be fulfilled by the coalition if it ends up in power. .The SME sector has undoubtedly been the hardest hit by the coronavirus lockdown. Here the measures in the programme for government are weaker. Many businesses haven’t the appetite to draw down loans, however inexpensive the rate of finance, to re-establish their business even where they might have the wherewithal to repay them. There is no point in replacing a cashflow crisis in Irish business with an indebtedness crisis, yet that is the thrust of the proposals for the rescue funds in the programme for government.Corporation tax receipts from multinationals and larger indigenous industry have bucked the trend for several years and corporation tax receipts have continued to increase in this country, at least so far, despite the pandemic. The proposals on corporation tax retain the thinking of confidence and supply, with the emphasis on retaining the 12.5 per cent rate.A commitment to adherence to tax sovereignty and endorsement of the OECD’s primacy in formulating international tax reform is a clear signal. The next government will be unenthusiastic about EU attempts to impose new digital taxes or rule harmonisation. Coincidentally, the work of the OECD on these issues received quite a rattle last week when the US signalled a withdrawal from current discussions on digital taxation.Service industry, large or small, is the great driver of employment in this country. Services are largely responsible for the trade surpluses we enjoy with many of our trading partners. The programme for government speaks a lot about jobs recovery and that is the correct approach. If the recovery is to be jobs led, it must be services led.The policies in the current programme are sufficiently vague to allow for a focus on services. If this is missing as the new government takes up its work, the accusations that there has been no real change may prove to have been well founded.Dr Brian Keegan is director of public policy at Chartered Accountants Ireland

 Originally posted on the Business Post, 31 May 2020 The Japanese government is delivering generous one off relief payments to residents of Japan as part of a package of measures to lift its economy following the coronavirus pandemic.  Japan, among the developed nations, has had one of the less stringent lockdowns with many businesses operating more or less as normal, except for the hospitality and tourism industries.  This per capita, no questions asked, lump sum is attractive but it is something of an outlier in the context of international economic responses.  One of the more striking aspects of government bailouts across the world has been their similarity of approach– cuts-and-pastes of policies between one jurisdiction and the next.  Now, as countries emerge from the restrictions, patterns of effectiveness of different types of government support for business are emerging.Like Ireland, many countries used their Revenue Authority as a primary channel for economic relief.  Tax systems have the dual benefit of holding records on the entire business community (at least in theory) along with automated processes.  Few developed economies do not at this stage have highly automated systems for payroll tax collection and sales tax collection and this infrastructure has been widely used to pay funds to support employment.  New Zealand is of course a paradigm of how to deal with the pandemic, and has gone one step further.  The New Zealand Inland Revenue also delivers cheap loans to struggling businesses and the amount of the loans is predicated on the number of employees in the business.Wage subsidy schemes like the Irish scheme have been introduced in the likes of Canada, Australia, Hong Kong and New Zealand.  Not all employment support schemes have been an unqualified success.  Some countries are finding that emergency coronavirus benefits for workers who have been made unemployed trump the benefits of staying in employment.  Complexity and claimant publicity in Canada have turned out to be significant disincentives for take up, similarly to the rumblings in this country when the scheme was first announced here.  Reaction to the UK’s Job Retention Scheme to date seems to have been largely positive, but their scheme is only a few weeks old.Countries are also exploring ways of getting more cash into troubled business.  Germany is looking to revise some of its tax rules so that losses in this pandemic year can be set against more profits already taxed in earlier years, resulting in refunds.  New Zealand is considering allowing estimates of likely losses in 2021 to be used to trigger tax refunds now.  In another echo of the Irish experience, Germany is scoping a new low rate of VAT for its restaurant sector.It seems that in many countries, direct welfare benefits paid to individuals have not just undermined attempts to subsidise businesses to secure employment, but created issues of their own.  There has already been some debate in this country as to how recipients of the pandemic unemployment payment will account for the tax due on those payments at the end of the year.  In Germany it is unclear if individuals receiving comparable benefits to our Pandemic Unemployment Payment will be obliged to file tax returns; normal German tax administration procedures suggest that they will.  On the other hand the peculiarities of the Australian system are such that many individuals will look to file tax returns early to secure refunds of income tax overpaid.  Revenue authorities in different parts of the world are thus facing the prospect of a flood of taxpayer activity either because of refunds due or obligations to be met.  That's something that could well happen here too, unless Revenue devise and publish processes to simplify compliance for all those workers facing tax liabilities arising either from the pandemic unemployment payment, or from wage subsidies which were not subject to PAYE.Future problems are accruing.  It's not just Ireland that is proposing to “warehouse” tax debt, but in every country where there has been tax debt deferral, these liabilities will ultimately have to be paid.  Countries are tending to replace the pandemic business liquidity crisis with a business debt crisis.  As long as that continues, there is little prospect of rapid business recovery.  Businesses which are currently being kept on artificial life support through subsidies, loans and tax deferrals will hit a wall when these dry up.  In Australia, the talk is already of an “insolvency cliff”, as troubled small businesses have up to now been shielded by a nationwide ban on liquidations.This week the Irish Fiscal Advisory Council was calling for an “adjustment” to the national finances but in fact are championing Austerity 2.0.  Yet if we do too much to hinder a return to previous levels of consumption, many businesses will be consigned to a limbo of business stagnation.  When the crisis hit, few jurisdictions had the time and space to look at models implemented in other countries before they introduced their own systems for pandemic relief.  Now it is different.  While we can’t afford to follow the Japanese example, we can benefit from experiences in other countries, and learn from the ones that are getting it right.Dr Brian Keegan is Director of Public Policy at Chartered Accountants Ireland

 Originally posted on the Business Post, 24 May 2020 The late US President, Ronald Reagan, had a simple maxim about government's view of the economy.  If it moves, tax it.  If it keeps moving, regulate it.  If it stops moving, subsidise it.  Coronavirus has thrown this maxim into action.   Everything has stopped moving in the economy and must now be subsidised. No less a body than the European Commission formally recommended this week that Ireland “take all necessary measures to effectively address the pandemic, sustain the economy and support the ensuing recovery”.  Borrowing is of course one way of funding these subsidies.  In its capacity as the watchdog of fiscal rectitude among EU countries, the Commission has invoked its General Escape Clause.  That means that there won't be any sanctions for countries borrowing what they have to borrow, and doing what they have to do, to secure their nations’ health and livelihoods.  The European institutions have even made long-term finance available at virtually invisible lending rates for these very purposes.While all this is helpful, it doesn't take away from the need to ensure sustainable tax revenues to deal with increased bills for our healthcare system, social welfare and other essential services which are likely now to extend well beyond 2020.  These bills cannot be met indefinitely by borrowing.  Gloomy unemployment forecasts of up to 22% in the second quarter of this year, as suggested by the Department of Finance this week, don’t augur well for sustainable tax revenues.We find ourselves in something of a phoney war, a period of stabilized abnormality.  Everyone is looking forward to the resumption of something approaching normality as the country embarks on its phased reopening of businesses and amenities.  The real measure of the Covid-19 pandemic will be not so much on what does reopen, but what does not.  While it is the high-profile household names – Debenhams, FlyBE - which receive all the attention when they hit the wall, most industry will find it just as difficult to return to pre-covid trading levels.  Smaller service industries in particular are now finding that once they have worked through any business that was on hand, there is nothing new in the pipeline.To compound matters, the British government's proposals on implementing the Northern Ireland Brexit protocol published this week, while receiving cautious welcome as being something rather than nothing, will not be workable.  The proposals emphasise not imposing additional customs declarations on GB and NI business as trade in goods flows between Britain and Northern Ireland.  This is politically understandable, but customs is a tax.  Taxes are very hard to enforce without declarations.  Further, the proposals are silent on how to manage the exports from Northern Ireland to Britain which are channelled for instance through Dublin Port.We have a battered economy that is dealing with massive unemployment, compromised business models and the challenges of Brexit rearing up again.  Irish industry is not even paying the taxes which are currently due let alone being able to deliver additional ones.  Downturns tend to promote clamour for tax reform because the fairest tax is always the one which you don't pay yourself.  Tax reforms like changing the corporate tax regime or introducing a wealth tax seem all the more attractive when cash is tight.  The current signals are that tax-raising measures are not high on anyone's priority list, but that will change.  Given the high number of business closures and job layoffs, there will be fewer income earners and hence fewer taxpayers for the next several years.For years Ireland has used tax as a primary lever of economic policy.  Long before we surrendered our interest rate and exchange rate mechanisms when we joined the euro group of countries, tax was used to drive investment and the employment which follows it.  Our system is characterised by a high rate income tax regime, a high rate VAT regime, a moderate rate capital tax regime, and a low rate corporate tax regime.  We aspire to social equity by having income tax rate thresholds and allowances skewed towards lower earners, generous tax relief for pension provision and a wide range of essential goods and services charged with VAT at lower rates.  It is impossible with any certainty to determine what tax changes might be sustainable when we really don't know what our economy is going to look like in three months’ time, let alone three years.  Overall though, when compared with most other developed economies the Irish tax burden is not particularly high.  We can rely on debt to meet the upfront emergency costs in 2020 and hope that these do not recur, but we cannot rely on it indefinitely while waiting for the numbers of successful businesses recover, and unemployment to fall.Changes will have to be made, but now is not the time to make them.  It is still the time for subsidies, not for taxes, just as Reagan’s maxim demands.Dr Brian Keegan is Director of Public Policy at Chartered Accountants Ireland

Sunday Business Post, 30 July 2017 How much can we reasonably expect to gain from next year’s budget? We won’t really know the answer to that until the middle of October. But figures published this week by the Revenue Commissioners contain strong hints as to what might be possible. And that is very little. “Ready Reckoner” is an innocuous enough title for a document that shows the tax landscape as Revenue see it. It’s a unique profile of the Irish citizen analysed not by where they live, nor by their status nor by their attainments or qualifications. This profile is all about the capacity of people to pay tax, and what the exchequer implications might be if they were asked to pay a little bit less or a little bit more. How many taxpayers? The single biggest achievement of the economic recovery has been the reduction in the number of unemployed people. While we still have some distance to go, the number of income earners in this country now tops 2.6 million. “Income earners” has a particular meaning of its own – for instance a married couple with two people earning are categorised as a single income earner. This particular report is blind to the usual niceties.  A significant number of income earners pay no taxes mainly because they are not earning enough to be caught in the tax net.  770,000 of us fall into this category. That still leaves almost 2 million taxpayers amongst whom the largesse of Budget 2018 must be spread. We know from the Summer Economic Statement that fiscal space for tax cuts is in short supply. If the money available for tax relief was to be spread evenly across the taxpaying population, we would all be better off to the tune of about two euros a week. That’s hardly a lifestyle changing benefit.  The recurring problem for any Minister for Finance is that any tax relief made generally available costs a fortune to implement. To make any meaningful change to the fundamentals of the tax system – say for example a 1% percentage point reduction in the 20% rate to 19% – €500 million must be set aside. That kind of sum is simply not available without raising taxes elsewhere and the ready reckoner contains plenty of ideas to do that.  Shaking the tree Take VAT for example. We seem to have a remarkable tolerance for VAT increases in comparison with income tax or local property tax increases. The 21% rate of VAT went to 23% in 2012 with barely a murmur. Over half of the goods and services bought by consumers attract VAT at the 23% rate. A one percentage point increase in the VAT rate to 24% would bring in €411 million. At that level you’re touching the edge of what the EU will allow, as the EU directives don’t permit the rate to go beyond 25%.  Excise duty would be another happy hunting ground for the Minister for Finance. By adding 10 cent to the price of a litre of diesel, the exchequer would benefit to the tune of €250 million. An extra 10 cent on a litre of petrol drags another €100 million euros into the government coffers. VAT and excise increases are especially attractive to government because they bring in additional money with almost immediate effect and are almost impossible for taxpayers to circumvent or avoid, legally at any rate.  Income tax, VAT and excise measures are undoubtedly the big-ticket items when it comes to tax collection.  For income tax in particular, the Ready Reckoner highlights another aspect of tax collection, frequently overlooked. If tax allowances and bands do not increase with inflation, the net result is a greater share of taxes flowing into the exchequer.  Even though inflation is historically low, by not indexing up items like the personal tax credit which currently stands at €1,650, the government stands to gain an extra €300 million. While this is a tax technique that goes largely unnoticed, it contributes to the individual’s sense of being within the squeezed middle and not feeling the benefits of economic recovery. Value for Money What the Revenue’s ready reckoner does not and cannot address is the extent to which the taxes identified represent good value for the taxpayer. We tend to look at taxes and tax collection in isolation without reference to the levels of government service and benefits provided. That makes it impossible for example to meaningfully compare different tax systems. It’s all very well to point to higher standards of public service in other countries – the Scandinavian countries are frequently cited – but at what cost to the taxpayer?  Where there are limited resources for tax cuts the focus must be on the equitable treatment of taxpayers. We are already good at progressivity – ensuring that people on lower wages pay proportionately less than those on higher incomes. We are not so good at ensuring that people in similar situations are taxed similarly. There are big discrepancies caused mostly by the jump from the 20% income tax rate to the 40% tax rate between people earning just below the average wage of around €37,000 per annum and people earning just above it. And the self-employed person on identical earnings to the salaried counterpart will pay €700 more in income tax.  Making some progress in the next Budget towards rectifying those anomalies is possible, even with limited resources. Brian Keegan is Director of Public Policy and Taxation with Chartered Accountants Ireland.    

Sunday Business Post, 23 July 2017 The Government's track record on critical areas of environmental management, how we treat water and how we treat waste, has been abysmal.  In regard to waste collection and a universal pay by weight system, that particular can was quite literally kicked down the road.  The shambolic efforts to establish a water authority with adequate resources to deal with the crumbling infrastructure defy description.  Not only has a water charges regime failed, we are to be allowed retain the €100 water conservation grant.  It would apparently be administratively too difficult to recover – “extremely difficult both legally and logistically” as the Taoiseach was quoted as saying earlier this week. If this is the way we deal with environmental problems we can see, touch, taste and smell, how are we to deal with environmental problems that we can’t?  Falling into this invisible category are carbon emissions.  The need to control the amount of carbon reintroduced into the atmosphere primarily by burning fossil fuels is tackled by yet another government plan published this week – the National Mitigation Plan.  On foot of recent experience with water and waste, even those of us who are not climate change sceptics are disposed to be sceptical about this new “living document” as it has been described.  Weighing in at over 60,000 words this particular living document will require a lot of sustenance to keep it going.  Carbon Emissions The management of carbon emissions is a serious topic, not least because we subscribe to international agreements which can involve financial sanctions for countries which don't do enough to meet carbon emission reduction targets.  The National Mitigation Plan observes that there will need to be a “targeted balance” (whatever that means) between Exchequer-supported expenditure and fiscal, taxation policies and regulation.  It then goes on to observe that in certain cases, “taxation policy may have a stronger role to play in changing individual or business behaviour”.  There is no doubt that taxation policy can have a huge influence on both business and consumer behaviour.  The paradigm is the environmental levy or the plastic bags tax as it is far better known.  This levy has decimated the use of plastic bags in this country.  It is striking when travelling abroad just how prevalent the use of plastic bags continues to be in countries which did not take similar steps to reduce their potential for pollution.   Ireland doesn’t only use a plastic bags tax to help improve the environment.  There are other levies already in place towards managing carbon emissions.  In this country, we have a system of carbon taxes on fuels, calculated at the rate of €20 per tonne of CO2 emitted from their combustion.  This results in a levy of about 5.6 cent on a litre of petrol, and 6.5 cent per litre of diesel.  Almost every motorist knows that a big chunk (around 60%) of the price of fuel at the pumps goes directly to the government in various forms of VAT and excise.  Nevertheless in a straw poll around my office which has its fair share of financially savvy people, hardly anyone was aware of the carbon tax component. Changing Behaviour This begs two questions.  First of all, is a 5 or 6 cent per litre levy sufficiently hefty to change consumer behaviour?  I suppose that's down to the individual.  It does strike me that the differential between the carbon tax on petrol and the carbon tax on diesel is not sufficient to make the average motorist prefer one fuel over the other.  But more importantly, how can any tax or levy change behaviour if people are unaware of it? Behavioural economics theory suggests that a big part of the reason the plastic bags tax is so effective as an agent of behavioural change is because it is so obvious.  A positive answer to “do you want a bag for those” results in an additional 22 cent being rung up at the till.  Shops even promote tax avoidance strategies by offering more robust shopping bags for sale or cardboard boxes for packing groceries.  Carbon taxes do not have anything like this prominence. On the other hand a carbon tax break which is well publicised might be far more effective.  The lower the rated emissions from the car, the lower the annual motor tax.  The Mitigation Report identifies this as a success with some justification – apparently three quarters of all vehicles sold fall into the lowest emissions bands.  Lower annual motor tax is an obvious advantage which a dealer will always point out on the forecourt when selling a car.    If effective measures to counter the volume of carbon emissions are to be taken via tax policy, any new charges involved have to be both clear and high-profile.  On recent evidence the instinct of the current administration is to shy away from any type of clear or high-profile charges on the population.  Charges of that type have already caused the demise of our water and delay of our waste policies.  This is the dilemma for this Mitigation Report.  Brian Keegan is Director of Public Policy and Taxation at Chartered Accountants Ireland