Corporate Tax

Biden’s tax reform places Eire’s corporate tax charge within the highlight

United States President Joe Biden speaks during a virtual meeting with Irish Prime Minister (Taoiseach) Michael Martin in the Oval Office of the White House on March 17, 2021 in Washington, DC. from Ireland.

Erin Scott | Swimming pool | Getty Images

DUBLIN – Ireland’s low corporate tax rate is back in the spotlight as US President Joe Biden seeks to reshape the global tax landscape.

The country’s 12.5% ​​quota was a key feature of its ability to attract dozens of large corporations, mostly US tech and pharmaceutical companies, to its shores, often creating many jobs.

Meanwhile, Ireland’s tax system has caused a lot of trouble, particularly in the € 13 billion Apple tax dispute with the European Commission.

Biden’s “Made in America” ​​plan to propose a global minimum tax rate has rekindled the fire, while Treasury Secretary Janet Yellen said the “race to the bottom” on corporate tax rates must end.

Tax consensus is a debate that has fizzled out for years, namely through the negotiations in the OECD on a worldwide minimum tax rate for companies and the various efforts of national governments to levy digital taxes.

Alex Cobham, an economist and chief executive of the Tax Justice Network advocacy group, told CNBC that while Biden’s proposals didn’t come up with anything that had never been proposed before, this time it’s more powerful.

“We are very positive about what the Biden administration has done, in part for both the major narrative change and the detailed policy,” he said.

“There was nothing new there, but what we do know is that the administration ended up in the media so much and they said that’s it, that’s the big thing.”

Any change in the corporate tax landscape will have an impact on Ireland, which has stuck to its 12.5% ​​rate for years. Corporate income tax revenue was $ 11.8 billion ($ 14.1 billion) last year.

“We are constructively participating in these discussions and will carefully consider all proposals, noting that there have not yet been any political discussions on these issues with the 139 countries involved in this process,” said a spokesman for the Irish Treasury.

Tax strategies

Biden’s strategy consists of two strands – what he can do at home and how he can bring about international change through consensus.

He plans to raise the U.S. corporate tax rate to 28% to fund his ambitious $ 2 trillion infrastructure program.

In the meantime, reaching an agreement on a global minimum tax rate would help keep US tax revenues below the level of lower taxable countries like Ireland.

“The contribution that will have the greatest impact on Ireland is the proposals to strengthen the concept of a global minimum tax where each country would in some way collect roughly the same percentages from businesses operating in its territory.” Brian Keegan, Director of Public Policy at Chartered Accountants Ireland, told CNBC.

“That is an aspect of the plan that the US cannot achieve on its own.”

The US is not alone in its ambitions, however. The French Finance Minister Bruno Le Maire has expressed his support.

But Biden has no time on his side as changes in the 2022 midterm elections could affect his ability to enforce action at home.

“Ultimately, any tax change is not a tax change, but a policy change that also indicates the urgency of the Biden tax plan,” said Keegan.

A consensus could be reached relatively quickly at the international level.

“The OECD process has been going on for at least two years, so a lot of technical work has already been done at the OECD level to achieve this,” said Keegan. “Many of the machines that would run a minimal system are already worked out.”

Ireland’s future

“I think we can say in about 18 months that you will have this global minimum tax in the US, across the EU and probably a little wider,” added Cobham.

Even with the tax rate rising, big tech companies like Facebook and Google, who have built large employee bases and physical infrastructure in Ireland, are unlikely to pack their bags and leave.

“Obviously (Ireland) is a place of real economic activity, it’s not that Ireland doesn’t have multinationals with jobs and sales, but the reported profits are completely disproportionate,” Cobham said.

“If you can do that, you lose a certain amount of tax revenue, but that is offset to some extent because you’re forced to effectively put a higher rate on the real thing. The revenue may not be that big.”

New challenges could arise for Ireland in terms of attracting future FDI in a world where taxation is equal.

In the face of the winds of change, Ireland will have to rely more on its other characteristics: its skilled workforce, the fact that it is an English-speaking EU country and its proximity between the US and Europe, linked by strong travel links.

“There could be a rather costly, if relatively short, adjustment period where the current Irish business model doesn’t work and a new one doesn’t exist,” Cobham said. “If you are the Irish government and you haven’t done it yet, the next two months you really need to focus on that and say, ‘What are we going to do in a year or two?'”

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