Critical decision looming for Ireland on corporate tax


The coming week could be huge for businesses in Ireland, especially large national and multinational companies.

This is because negotiations around a new global corporate tax framework may be on the verge of a crescendo.

Depending on how things play out over the next few days, the result could be a drastic shift in Ireland’s corporate tax policy.

For so long, the 12.5% ​​rate has been Ireland’s calling card, the foundation on which a vibrant and lucrative export-oriented economy has been built, which in turn has become a powerful engine. economic growth.

Remind me why change is sought?

The pressure has grown in recent years for a substantial overhaul of how corporate tax is calculated, how much is collected and where it is paid.

Many countries were increasingly frustrated with big business, especially in the tech space.

These were companies that made large sums of money in their territory but could avoid paying a lot (if any) in taxes locally because they had no real business there.

Governments were also becoming annoyed that aggressive tax planning was being used to shift profits around the world to places with lower or no tax.

So where does the OECD come in here?

The annoyance of states that were losing out because of this situation began to lead some of them to threaten to break with global tax standards and instead pursue their own policies, such as imposing special taxes on large digital companies, like Facebook, Google and Amazon.

Without control, this had the potential to lead to a bit of a general melee that could have resulted in an extremely disruptive, bureaucratic and disparate system across the world.

So, under the auspices of the Paris-based Organization for Economic Co-operation and Development, a process began to attempt to reach a global deal on corporate tax reform.

It has been operating for several years, with 139 participating countries.

But now it looks like he’s about to reach the end of the game.

OECD headquarters in Paris – aiming for a global agreement on taxation

And what has been proposed by the OECD?

Last November, the OECD announced that 130 of those 139 countries and jurisdictions had signed a plan that would bring in sweeping new reforms.

According to the proposals, countries would be able to tax the profits of large companies in the markets where they are made, whether or not they have a physical presence there.

The framework also proposed that an overall minimum tax rate of “at least 15%” be set.

The rate would apply to companies whose turnover exceeds the threshold of 750 million euros, only the maritime industry being exempt.

The feeling in the government is that the negotiations are moving in a positive direction, but no one is sure yet that Ireland will get enough of what it wants.

The OECD said the plan would ensure multinational companies pay a fair share of tax wherever they operate and provide much needed revenues for governments, as well as stability.

Those who signed on to the plan accounted for 90% of global GDP and included the United States, China, the United Kingdom, France and Germany.

Since then, a number of other refractories have also registered.

But Ireland didn’t, did it? Why is that?

No, the government was not among the 130 original signatories, leaving it out.

Ireland has no major problem with the first part of the plan, which would give countries the right to tax companies on the basis of their activities in a country, even if the company does not have there. no major activity.

Ireland’s problem lies in the second part of the draft agreement, which sought to set an overall minimum tax rate of “at least 15%”.

Ireland does not want to give up its 12.5% ​​rate at all, if it can help it. And if necessary, he wants the new rate to be as low as possible.

There is a private acceptance in government circles that 15% would be a reasonable compromise under the circumstances.

But only if the deal offered the certainty and stability of a fixed rate of 15% – not 15% or more.

It is therefore not surprising that Ireland did not register at the start.

Not when the absolute finish line of negotiations had yet to be reached and there were many variables at play, including whether the plan would even go through the US Congress.

And so, since then, Irish officials, along with the Minister of Finance, have been negotiating hard with anyone who will listen to have the “at least” part of the description removed.

The key to the negotiations also lies in the “exclusions” or exemptions from the new global minimum rate which will also be included.

So what’s going on this week then?

The latest and possibly final draft agreement is expected to be distributed to all participating countries in the coming days.

When that happens, it will quickly become clear whether or not Ireland has been successful in its lobbying efforts.

If this has been the case, then the government will face a difficult decision on whether or not to drop the 12.5% ​​rate – a key weapon in Ireland’s arsenal of foreign direct investment which is closely monitored for decades – in the hopes that by doing so now, it will limit the damage in the longer term.

And if it hasn’t been successful, then Cabinet will face an even more difficult decision to stay out of the deal, leaving it as an outlier in the global economy.

Or he could decide to endorse whatever the text offers, perhaps including the “at least 15%” clause, because staying out of the deal is no longer tenable.

To complicate the decision-making process, it remains unclear how the US tax reforms proposed by the Biden administration will play out and whether they will complement the overall plan.

The feeling in the government is that the negotiations are moving in a positive direction, but no one is sure yet that Ireland will get enough of what it wants.

Ireland is a very small global player. But he has many friends in the United States and Europe and a thriving collection of foreign multinationals who have a lot of influence in their home markets.

On Friday, representatives of the 139 countries involved in the process will hold a plenary meeting at the OECD where a final agreement could be signed.

It is not certain that the process is finished and that the deadline can drift.

But all the signs are that the time for decision is approaching for the government.


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