Why a new Commission on Taxation would be a good move for the next government

Tom Maguire Sunday Business Post | 1 March 2020

It’s good to talk. I know, because in my last column, which looked at the corporate debt-bias I wrote, “Say the words “two-four-seven” to any tax adviser (that’s the section of law at issue) and watch their reaction, I dare you!” And you did! I’ve since been fielding phone calls from colleagues across the country telling me not to say “I dare you” in this column anymore. Okay, could you now say the words “tax reform” to those same advisers and watch their reaction: I double dare you!

We’ve seen so much tax reform in such a short period of time. I’ve written in these pages about various political parties suggesting setting up a new Commission on Taxation (COT) to delve into Ireland’s tax system. I called it COT2.0 as only one other such Commission convened this century (COT1.0) back in 2009. Given that tax has been with us for centuries then COT1.0 isn’t that long ago in tax terms so why go with another one now?

The reason is that tax has metamorphosed since COT1.0 convened. So much so that if you were to travel back in time to 2009 and if you were to talk to the same tax advisers we spoke about earlier and tell them what was going to happen in the next decade then I don’t think any of them would believe you. Before you all H. G. Wells on me (and for the record I didn’t have hair back then either) you have to remember iPads didn’t come about until the year after COT1.0 reported and a hybrid wasn’t a car it was a science fiction curiosity back then. It was a very different time and COT1.0 was done shortly after the earth fell off its economic axis and thankfully we’ve moved on from that now.

Since COT1.0 we have seen the OECD’s Base Erosion and Profit Shifting Initiative (BEPS). That was a significant catalyst behind the EU’s two Anti-Tax Avoidance Directives (ATAD) and we’ve seen huge changes in our domestic law to cater for these matters and other domestic issues. This included a new corporate exit tax, anti-hybrid instrument and entities legislation last year, controlled foreign companies countermeasures and we’ll see a new-fangled restriction on corporate tax deductions for interest paid by companies later this year.

We also saw a large part of the planet sign up to a new giant tax treaty (the Multilateral Instrument (MLI)). The MLI is part of the OECD’s BEPS initiative and sought to deal with, according to the OECD, the avoidance of €240 billion in tax annually between those countries. Without this giant treaty almost 1,100 double tax treaties between those countries would had to have been renegotiated and amended individually which could have taken decades. We have also legislated for the EU Mandatory Disclosure Rules with the groovy title “DAC6” where certain cross border transactions entered into since 28th June 2018 have to be reported by the end of the summer this year. 

All of this was done in less than a decade and sometimes it’s good just to hit the pause button and to look at the tax code in one go and ask does it meet its objectives. I’m not just talking about all the EU/OECD changes but the whole tax code. Are we doing enough to attract investment? What policies are actually deterring investment in this great land of ours? Are we doing enough to assist domestic entrepreneurs? Are we doing enough to incentivise real estate development? Are we doing enough full stop? I can guess some readers’ answers to those questions and tax needs to do its bit.

And we’re now living in the digital age. The whole area is being looked at by the various countries’ tax authorities right now given that we have new methodologies interacting with existing tax concepts. In addition, one only had to attend Digital Business Ireland’s inaugural event last week to see just how small the earth’s marketplace has become, given the significant technological advancements since COT1.0.

COT1.0 had almost twenty members from very diverse backgrounds to include tax advisors, members of industry, trade unions and so on. This allowed diverse opinions to be aired in connection with the application of tax law to the various membership constituents. I’d argue that such level of diversity should be maintained in convening any future COT.

One area that jumped out of COT1.0’s report was the requirement for a stable revenue base because it’s as important today as it was then. COT1.0 considered stability an important attribute of a tax system noting that it implied that the tax system should be designed with a view to eliminating as far as possible the volatility of tax receipts. That could have been written at the same time as this column and in fact it would make an easy copy and paste into the next Commission’s report!

In particular the group noted that “A consideration in achieving a stable tax base is to tax those factors that cannot avoid the charge to tax. The most obvious example of this is immovable property. We consider that the taxation of property is one area of Ireland’s tax system that is particularly in need of reform. Introducing an annual tax on residential property represents an important step towards providing a stable and non-volatile tax base”. And we brought about Local Property Tax a few years later. This is why such a diverse group should be involved in any proposed Commission, but I’m probably saying that which is already known in any event.

Irrespective of the constitution of the next government, looking at our tax code in total one more time with an eye to the past and to future is a good move right now. This is particularly so when there’s so many economy benefitting ideas that should be acted upon now and not “lost in time, like tears in rain” as the late Rutger Hauer put it in 1982’s “Blade Runner”. A diverse and “nut and bolts” review of the tax code would put all economic tax enablers and inhibitors front and centre and in context which could then be acted upon as appropriate. Bottom line, it’s good to talk.

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