Ireland has no plans to raise its corporate tax rate – one of the lowest in developed countries – the country’s finance minister told Sky News, which could undo Joe Biden’s radical system for a global minimum tax rate.
Paschal Donohoe said he had “significant reservations” about plans by the US president to encourage countries around the world to introduce minimum corporate tax rates to prevent companies from shifting their profits and avoiding future payments.
He projected that Ireland will maintain its corporate tax rate of 12.5% for many years to come.
In an exclusive interview with Sky News, Donohoe said, “We really have significant reservations about a global effective minimum tax rate status at such a level that it means that only certain countries and economies of certain sizes can benefit from that base – we have a really significant concern about that . “
The comments are important as Ireland is one of the countries whose treaty would be required if the US is to successfully implement its global corporate tax overhaul plans.
International corporate tax regulations ultimately go back a century, at a time when it was far more difficult for companies to use bookkeeping and legal loopholes to reduce their tax burdens.
Today, billions in profits are being shifted to countries with lower tax rates, which the Biden government has promised. The US is planning to increase its own corporate tax rate from 21% to 28% and is increasing the rates for American companies that work overseas.
However, it has also been suggested that other countries also raise the floor below which business tax rates could not fall to prevent American companies from relocating their headquarters overseas.
The original American proposal set a global minimum rate of 21%, but this has since been reduced to at least 15%. However, this would mean that Ireland would have to raise its tax rate from its current level.
Mr Donohoe said there were no plans.
“I absolutely support our tax rate of 12.5% and will represent it,” he said. “I believe such a rate – a low rate – should be a feature of an agreement going forward.
“Our friends and partners in the United States understand our concerns on these matters, but the best kinds of partnerships – the best kinds of friendships – are those in which you can speak openly about these matters and interact professionally, and that is what we’re going to do. “
When asked if he envisions that the Irish rate of 12.5% will still exist in five or ten years’ time, he said: “Yes, I assume there is still a place for such a rate and for low ones Will give sentences. “
He added: “I am proud of the role it has played in our economic development. For a country of our size and size, that we have been able to grow our economy, that we have been able to grow over many decades, but I do in the debate always claiming above our 12.5% rate that it is only part of the competitive offer for an economy like Ireland’s.
“The Irish economic model now has many, many foundations, it has many different pillars of strength and I am proud of all of them.”
Mr Donohoe’s comments add fuel to the upcoming tax negotiations, which will be part of the G7 finance ministers’ meeting in London late next week and are likely to be discussed in depth by the Organization for Economic Co-operation and Development (OECD) later this year.
The OECD has been pushing for corporate tax reform for many years. While it supports proposals for a global minimum corporate tax, it has also suggested that such reforms should be coupled with other reforms to make it clearer how taxes should be allocated to specific countries.
Michael Devereux, Professor of Taxes at Oxford University’s Said Business School, said reforms are a long time coming.
He said, “I think the tax system as it is is completely broken. It was set up in the 1920s for a completely different world. And the world of global economy that we have now is really just too global for the international one Tax system as it is.
“We are making all sorts of very complicated and mysterious decisions about how tax rights on profits are to be distributed from one country to another in a way that really has no economic significance. I think there is a real case of fundamental reform.
“A minimum tax rate would solve some of these problems, but it wouldn’t really get to the real problems of the international tax system, which are complexities: Nobody really knows exactly why we have the system that we do. It’s just that we ‘ I’ve always had it, and it creates a lot of problems, including economic efficiency but also profit shifting. “
While some reports suggest UK Chancellor Rishi Sunak is against a global minimum tax, Sky News has learned that the Treasury Department supports Mr Biden’s minimum tax rate but wants it to be introduced along with other reforms in the way how companies calculate and share their taxes between countries.
A Treasury source said, “We support the global minimum tax rate. But it is about achieving full OECD reforms, not just half of what the global minimum tax rate is.”
The UK is currently levying a digital services tax for the tech giants, but Whitehall insiders say that if OECD reforms are fully implemented, that tax would be lifted.
Amid repeated criticism from the UK government, including former Brexit negotiator Lord Frost, of the way the Northern Ireland Protocol is being implemented by the EU, Donohoe said: “Minister Frost and his team negotiated this protocol. The protocol and the treaty were passed by the House of Commons.
“The protocol was needed because of the form of Brexit the UK government wanted to implement, which we respect. That is their sovereign mandate, but it is just as important that our membership of the European single market is an exercise of sovereignty on behalf of the Irish people too recognized in this debate. “
When asked if he thought the implementation was going well – something Lord Frost has complained about – Mr Donohoe said, “There are many different tests on the protocol. One of my tests as a member of the Irish Government is: Do we have a border between Northern Ireland and Ireland that is inherently tough?
“Second, did the implementation and conduct of Brexit have any material impact on Ireland’s internal market membership?
“Neither of those two things happened and in my view this is critical to our own country’s prospects and I believe in the island’s long-term interests.
“So I am doing the case for these tests and how the protocol passes them, but I have also recognized that there are problems with the protocol and that is why the Commission is working with the UK government.”