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European Commission to pressure Ireland on tax in recovery fund plan

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The European Commission will pressure Ireland to address “aggressive tax planning” in national plans for spending its chunk of the bloc’s €750 billion Covid-19 economic recovery funding, The Irish Times understands.

Ireland is due to get hundreds of millions of euro in grants and loans over the next three years as part of the stimulus plan, but must submit a plan for how it will spend the cash that must be signed off by the commission.

Member states must commit to using the money for investments that strengthen their economies for the future, particularly in digitalisation and green initiatives, in order to get the nod.

But the commission will also insist that governments agree to implement a longstanding list of recommended reforms, known as “country-specific recommendations”, for their spending plans to be signed off on and the cash released.

This would include measures to “close loopholes in their tax codes, modernise/digitalise tax administration, and promote a culture of compliance”, according to a commission document.

European economy commissioner Paolo Gentiloni has confirmed that tax reforms are on the commission’s wish list when it comes to Ireland’s national recovery plan, in a written answer provided to Sinn Féin MEP Chris MacManus seen by The Irish Times.

“It is important to strengthen the fight against tax avoidance and close loopholes that can lead to situations of double non-taxation,” Mr Gentiloni wrote.

“In the Irish context, the high level of royalty and dividend payments as a percentage of gross domestic product suggests that tax rules are used by companies that engage in aggressive tax planning.

‘Substantial progress’

“Member states’ recovery and resilience plans are expected to contribute to effectively addressing all or a significant subset of challenges identified in the relevant country-specific recommendations, including fiscal aspects,” he added.

“Unless the commission has assessed progress with these recommendations as ‘substantial progress’ or ‘full implementation’, all country-specific recommendations are relevant.”

The European Commission is under intense pressure from more fiscally conservative member states to tightly police how the recovery funds are spent, and has vowed to use “strict criteria”.

In its 2020 recommendations for Ireland, the commission wrote that a high level of certain payments to shareholders as a percentage of national gross domestic product indicated that companies were using Irish tax rules for aggressive tax planning.

It argued that tackling the issue “is key to improve the efficiency and fairness of tax systems”, and that broadening the tax base would also make Ireland’s public accounts “more resilient to economic fluctuations and idiosyncratic shocks”.

In initial draft national spending plans by EU member states, the issue of aggressive tax planning “is not addressed”, according to a commission document, which notes that measures already taken “only partially address” the issue.

International momentum

Minister for Finance Paschal Donohoe defended Ireland’s record on tax in a key speech last week, in which he said the country “has fully engaged in making massive strides” on tax transparency and reforms.

Mr Donohoe acknowledged there is international momentum to reach international deals on digital taxation and minimum corporation tax rates. But he defended Ireland’s 12.5 per cent tax rate as fair and said tax policy was essential to help small countries compete, “as a legitimate lever to compensate for advantages of scale, location, resources, industrial heritage and the real, material and persistent advantage enjoyed by larger countries”.

The initial deadline to submit national spending plans was Friday, but Ireland received an extension along with several other member states, and is expected to submit the 1,000-pages document in May. The commission is expected to receive about a dozen national plans by this weekend.

Ireland is among the EU countries which have yet to ratify a key part of the EU recovery plan, allowing the commission to borrow to raise the money, something that requires approval in national parliaments.

Germany, France, Italy and Spain made a joint call for national parliaments to sign off on the plan as soon as possible so that the money can start flowing to stimulate pandemic-struck economies. with Spain’s economy minister and deputy prime minister Nadia Calviño insisting “time is of the essence”.


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Simon Harris and wife welcome new baby boy

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Minister for Further and Higher Education Simon Harris has announced the birth of a baby son.

Posting on Instagram, the Minister said he and his wife Caoimhe had on Wednesday “welcomed Baby Cillian into the world”. Cillian is the couple’s second child, they also have a daughter Saoirse.

“Caoimhe and baby doing great and Saoirse delighted to be a big sister and looking forward to meeting him soon.”

Mr Harris thanked all of the staff at the National Maternity Hospital in Holles Street, Dublin.

The Fine Gael TD said he will be taking paternity leave for a few weeks to “get to know this new little man”.

In a previous post he said Tánaiste Leo Varadkar would be taking any of his department’s business to Government during the time while Minister of State Niall Collins would be carrying out his day-to-day work in the department and Labour leader Alan Kelly would be providing a pair for Dáil votes.

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Macron presses Biden for ‘clarifications’ over submarine snub

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Macron was left furious by Australia’s decision last week to ditch a 2016 deal to buy diesel submarines from France in favour of nuclear-powered ones from the United States and Britain.

After a cabinet meeting, government spokesman Gabriel Attal made clear French anger had not abated with an unusually frank statement of Macron’s expectations from the scheduled conversation with 78-year-old Biden.

The exchange would be an opportunity to “clarify both the way in which this announcement was made and the way for an American re-engagement in its relationship with an ally,” Attal said.

Paris was particularly outraged that Australia negotiated with Washington and London in secret, which French Foreign Minister Jean-Yves Le Drian denounced as “treachery” and a “stab in the back”.

French officials were notified about the loss of the contract just hours before Biden unveiled the new AUKUS security and defence partnership between the three English-speaking countries.

READ ALSO OPINION: France’s Australian submarine row shows that Macron was right about NATO

Macron was expecting “clarifications about the American decision to keep a European ally outside of fundamental talks about cooperation in the Indo-Pacific,” Attal added, without giving the schedule time for the exchange.

“We expect our allies to acknowledge that the exchanges and consultations that should have taken place did not, and that this poses a question about confidence, which all of us need to draw conclusions about now.”

Showdown

The submarine row has plunged Franco-US ties into what some analysts view as the most acute crisis since the US-led invasion of Iraq in 2003, which Paris opposed.

After four years of tumultuous relations with ex-president Donald Trump, the spat has also dashed hopes of a complete reset under Biden, who took office in January aiming to rebuild frazzled ties with Europe.

As the row drags on, observers and some of France’s European partners are wondering how and when the French leader will call an end to the face-off, which is playing out just seven months ahead of presidential elections.

British Prime Minister Johnson said it was “time for some of our dearest friends around the world to ‘prenez un grip’ (get a grip)” in comments in Washington that mixed French and English.

“‘Donnez-moi un break’ because this is fundamentally a great step forward for global security,” he told Sky News.

Danish Prime Minister Mette Frederiksen, whose country is staunchly pro-American, defended Biden as “very loyal” and warned against turning “challenges which will always exist between allies into something they should not be.”

Conditions

Attal said that France and the US needed to begin a process “to create the conditions for confidence to be restored”.

As well as an acknowledgement of French interests in the Pacific region, the process should include “full recognition by our American allies of the need to boost European sovereignty as well as the importance of the growing commitment by the Europeans to their own defence and security.”

This latter point is a source of tension between Biden and Macron, who has pushed hard during his four-and-a-half years in office for Europeans to invest more in defence and pool resources in order to increase their joint military capabilities.

The US, and some EU members including Denmark and Baltic countries, see this as a potential challenge to NATO, the US-led transatlantic military alliance that has been the cornerstone of European defence since World War II.

French Defence Minister Florence Parly argued against the idea of France withdrawing from NATO command structures, which some politicians in France have suggested in the wake of the submarines snub.

“Is it worth slamming the door on NATO? I don’t think so,” she said, while adding that “political dialogue is non-existent in NATO.”

Australia’s decision to order nuclear-powered submarines was driven by concern about China’s commercial and military assertiveness in the Pacific region, where Biden is seeking to build an alliance of democratic states to help contain Beijing.



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Paschal Donohoe plans bank levy extension but lower haul

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Minister for Finance Paschal Donohoe will continue the Irish banking levy beyond its scheduled conclusion date at the end of this year, but plans to lower the targeted annual haul from the current €150 million as overseas lenders Ulster Bank and KBC Bank Ireland retreat from the market, according to sources.

Reducing the industry overall levy target will avoid the remaining three banks facing higher levy bills at a time when the Government is seeking to lower its stakes in the bailed-out lenders.

AIB, Bank of Ireland and Permanent TSB paid a combined €93 million levy in each of the last two years, according to their latest annual reports. A decision on the new targeted yield, currently linked to deposit interest retention tax (DIRT) collected by banks on customers’ savings, will be announced at the unveiling of Budget 2022 on October 12th.

Originally introduced in 2014 by then minister for finance Michael Noonan for three years to ensure banks made a “contribution” to a recovering economy after the sector’s multibillion-euro taxpayer bailout, the annual banking levy has since been extended to the end of 2021.

A further extension of the levy has largely been expected by the banks and industry analysts, as the sector has been able to use multibillion euro losses racked up during the financial crisis to reduce their tax bills. A spokesman for the Department of Finance declined to comment on the future status of the banking levy as planning for Budget 2022 continues.

AIB, Bank of Ireland and Permanent TSB (PTSB) alone have utilised almost €500 million of tax losses against their corporation tax bills between 2017 and 2019, according to Department of Finance figures.

Sources said that the Government will be keen not to land a levy increase on the three lenders at a time when it is currently selling down its stake in Bank of Ireland and plotting a course for the reduction of its positions in AIB and PTSB in time.

The Ireland Strategic Investment Fund (ISIF), which holds the Bank of Ireland stake on behalf of the Minister for Finance, sold 2 percentage points of holding in the market between July and August, reducing its interest to just below 12 per cent.

Meanwhile, it has been reported in recent days that the UK government is planning to lower an 8 per cent surcharge that it has applied to bank profits since the start of 2016. It comes as the general UK corporation tax is set to rise from 19 per cent to 25 per cent in 2023.

“The optics of reducing the surcharge might still be bad politically, but it would signal the partial rehabilitation for the nation’s banking sector,” said Eamonn Hughes, an analyst with Goodbody Stockbrokers, in a note to clients on Tuesday, adding that he continues to factor in a retention of the Irish banking levy in his financial estimates for banks over the medium term.

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