One economist said Ireland maintaining its current corporate tax rate of 12.5% could be harder than it is worth if a minimum global corporate tax comes into effect.
It comes after the finance ministers of the G7 countries reached an agreement Establish a global minimum corporate income tax rate.
The final agreement sets the minimum global corporate tax rate at 15%.
Edgar Morgenroth, economics professor at the DCU, said The Hard Shoulder the 12.5% jump for Ireland is feasible.
“I think if the US and the G7 really, really want it, I suspect there will be very little stopping it.
“The difference between 12.5% and 15% isn’t that big, so I think – if I were finance minister – I wouldn’t die in the ditch at that 2.5%.
A comparison chart showing various corporate tax rates around the world. Source: IDA Ireland
“What we’ve seen in the past is Ireland’s course and how it is used by businesses has come into the spotlight.
“In this context, standing out by 12.5% could mean more trouble than it’s actually worth in the end.
“I think the IDA is a little bit maybe a marketing in a special way – there are countries that have lower corporate tax rates than Ireland, or at least some of their business.
“But it is certainly something that the continuity of around 12.5% has been used by IDA as a marketing tool for many, many years.”
‘Cracks’ in the system
An Irish subsidiary of Microsoft made $ 315 billion in profits last year but paid no corporation tax as it is a Bermuda tax resident.
Prof. Morgenroth said companies can use the various systems to their advantage.
“That is ultimately the big issue in corporate taxation.
“In different countries there are different regimes – and because they are not exactly coordinated, there are some kind of cracks that companies use.
“And that means that Microsoft doesn’t pay any tax.
“They haven’t done anything illegal, but they have used the system and the differences in systems between different countries in a special way.
“So that at least 15% is basically trying to account for that fact because I think most people would argue that some of these big companies aren’t paying their fair share of the taxes.”
Ireland’s corporate tax “could be more trouble than it’s worth,” warns Economist
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At the G7 summit in London in his capacity as President of the Eurogroup, Finance Minister Paschal Donohoe said: “I take note of the common position of the G7 finance ministers on international corporate taxation.
“It is in everyone’s interest to reach a sustainable, ambitious and fair agreement on the international tax architecture.
“I am now looking forward to taking part in the discussions in the OECD. There are 139 countries around the table and every agreement must meet the needs of small and large countries, developed and developing countries.”
Speaking in the last month US Congressman Richard Neal said: Companies will look to Ireland even if international corporate tax rates change radically.
He believes that “we will all be better off” if there is a more harmonized international system.
“Do I think Ireland is a haven of tax avoidance? No, I will not do that.
“Do I think you have introduced a corporate tariff that you believe is competitive against international jurisdiction? I do, but it’s up to them.
“I believe Ireland’s commitment to education and ensuring the international competitiveness of its people through future generations is at least as responsible for Ireland’s economic success as its corporate tax rate.
“American companies will always look for opportunities with an experienced population. Ireland has it.”