Ireland could be a net loser if EU proposals for taxing the digital economy are approved.
Ireland stands to lose up to €160m a year in lost tax revenue if the EU presses ahead with new digital tax plans.
The EU is looking to raise €5bn a year through the introduction of a digital tax of 3pc on the revenues of tech giants, rather than their profits.
The drive is being largely led by France, Germany and the UK, for a tougher approach to alleged tax avoidance by tech giants such as Facebook, Google, Apple and Spotify.
An Oireachtas finance committee at Ireland’s Parliament heard that the proposed tax on digital services could cost Ireland between €120m and €160m annually based on sales of the top 10 digital companies located here.
The EU proposes that tax revenues would be collected by EU member states where users are located rather than where operations are located. They apply to companies with total worldwide revenues above €750m and EU revenues above €50m.
Revenue official Kate Levey told the committee that, based on an estimation of €5bn gained through taxes on digital services across the EU and divvied out among 28 countries, Ireland would yield only €45m.
Far-reaching implications of EU digital tax plan
It is estimated that the ultimate hit will be 2pc of Ireland’s €8bn in corporation tax, which is jealously watched by other EU countries.
The fear is that, while 2pc might not seem like a lot, in the longer term, the advantages of locating in Ireland will be eroded by the proposed EU digital tax.
It is understood that the top 20 digital companies based in Ireland had combined EU sales of €56bn in 2017, out of which 95pc came from the top 10 companies, including Microsoft and Amazon.
If between 60pc and 80pc of their sales are liable for the new EU digital tax, then up to €160m a year could be deducted from their corporation tax.
But why is this happening?
There is considerable unease in the UK, France and Germany that tech giants do not pay enough taxes.
We recently reported how sweeping new tax changes in the UK will see tech firms taxed on revenues rather than profits.
The 3pc tax is being put forward by Brussels as an interim solution, pending more far-reaching digital reforms.