Leinster House, home of the Dail, or Irish Parliament, in Dublin, Ireland
When Irish Treasury Secretary Paschal Donohoe delivered his bumper budget address last month, he knew once again that the country’s corporate tax rate would remain unchanged.
However, it was recognized that “changes at international level are inevitable”, which relates to the OECD negotiations, and that Ireland would feel the effects.
“An agreement at the OECD level would be challenging for Ireland as changes in the international tax framework would lead to a reduction in taxable profits,” he said.
“If no agreement is reached at the OECD, this would also have negative consequences for the treasury.”
The Irish corporate tax rate of 12.5% - much lower than most developed countries – was key to attracting many multinational companies to the country, especially among tech giants with Apple, Google and Facebook that have a presence in the EU. Corporate tax revenues have helped offset some of the challenges posed by coronavirus to the Irish economy, according to the budget.
The tax rate and the Irish tax system for multinational corporations have also generated a lot of criticism, which is marked by the infamous Apple tax case.
At the international level, negotiations on the OECD continue to bring about major global taxation reforms, including a new framework for taxing technology firms and the creation of a minimum corporate tax base.
This mission was aimed at reaching an agreement by the end of 2020 but was recently postponed to mid-2021 with both the US and Europe still battling for their position.
Manal Corwin, head of Washington National Tax at KPMG and a former Treasury Department official, told CNBC that the discussions are both political and technical and the pandemic is making things even more difficult.
“The strategic bet is that when we have the ability and ability to return to a political settlement, we will do as much as possible of the technical foundations of these two pillars and elaborate and comment and refine them by the public, then it can go quickly, “she said.
The tax reforms consist of two pillars. The first pillar relates to the digital economy and could result in profits being taxed where customers are. Pillar two refers to a global minimum tax rate that does not take into account where companies are headquartered.
The OECD has positioned the two pillars as complementary and connected, but not everyone sees it that way.
“If you look at the 137 jurisdictions at the table, there are those who are a lot more interested in pillar two and want pillar two to happen and not sign up for pillar one unless pillar two comes,” she said .
Earlier this year, the US took a break from tax talks. In the meantime, France has suspended its own tax on digital services to allow international calls to come to an end. The European Union has also announced that it will resume work on its own block-wide tax if international efforts fail. If progress continues to stall, Europe could resume that baton.
This is typical of the political congestion that has long been the subject of discussions.
Peter Reilly, Head of Tax Policy at PwC Ireland, said the ultimate goal of tax reform remains the same, but the way to get there and the details are yet to be played out.
“The OECD estimates that companies around the world will pay more taxes overall, but where that tax falls is up for discussion and negotiation,” Reilly told CNBC.
“While the new proposals are sure to have an impact on Ireland, the alternative, no deal and unilateral action, could actually have a bigger impact,” he said.
“From a business perspective, the rules, even if they have no impact on a company’s tax burden, could be an enormous burden from an administrative perspective.”
A failure of the OECD process could result in the EU pulling the trigger on its own tax system and creating different rules inside and outside the EU that could increase trade tensions, he added.
“First and foremost, Ireland, as a small open economy, will always be vulnerable to barriers to world trade, and as such, a multilateral approach appears to be more beneficial,” said Reilly.
Meanwhile, despite Ireland and Apple’s legal victory over the European Commission in July, the Apple tax case hasn’t gone away. The Commission has decided to appeal this decision to the European Court of Justice in order to recover the 13 billion euros that Apple owes.