The largest countries in the world, led by the United States and backed by the European Commission and most European nations, are on the verge of a global agreement to curb the most outrageous multinational tax avoidance practices and introduce a minimum corporate tax rate of “at least 15 percent”.
While the big ones land the deal near the coast, Ireland struggles in the water behind them, gasping and gulping, and out of its depths. The others don’t even listen anymore while the government coughs and gossips about tax sovereignty and competition and the rights of small nations.
It doesn’t matter that the injustice of a minimum tax rate has a point. Now everything is just noise. Aside from a last-minute diplomatic coup d’état in Europe by Finance Minister Paschal Donohoe, it seems like the others don’t feel like throwing him a bespoke green lifebuoy.
You’re alone this time, Irishman. Start swimming or dive below the surface and let your land be a reef instead of an island.
According to Donohoe’s admission, a hole of at least 2 billion euros could be blown in this nation’s finances. In Washington, Brussels and Paris, the seat of the Organization for Economic Co-operation and Development (OECD), where Ireland’s fate is sealed, changes are being rammed through various international forums by highly motivated people. There is little to suggest that they will not prevail. The G20 meeting in Venice next month could be decisive.
The government seems almost to have come to terms with its fate. But a speech by European Economic Commissioner Paolo Gentiloni to a Dublin audience this week, in which he shrugged his shoulders at questions about even deeper tax harmonization, suggests that things could get worse for this state.
The circumstances in which the republic now finds itself are almost entirely their own fault. For nearly two decades, various Irish governments with members of all political stripes have looked the other way, while US multinationals have used the state as a safe house to steal other countries’ tax revenues.
The price of Ireland’s tolerance was jobs and investment. Most of us know the essential truth about it, no matter what dual thinking we use to cover it up.
The state allowed itself to become a big, green trampoline when multinational corporations used its regulatory elasticity to send billions of euros in profits across the oceans to real tax havens.
We were limber at these tax gymnastics Olympics. Other countries eventually grew tired of Irish gadgets. Now, as the pub boredom like to say, we are where we are and there is no other culprit.
There is a huge difference, however, between the gloomy business of facilitating tax stealing from other countries and the crystal-clear legitimacy of attracting investments with a corporate tax rate of 12.5 percent. The two are completely different endeavors, but the two are now inextricably linked in the meta-deal the big guys are driving across the finish line.
In backing the minimum control element of the proposed global deal, the Commission and Ireland’s larger European counterparts have sold this state on a fundamental EU foundation – the immutability of tax sovereignty, which is a national competence, not that of the EU.
What better expression of sovereignty than the freedom to set your own tax rates? Ireland is now on the verge of being forced by a threatened EU directive to implement an OECD deal and raise its interest rate to its disadvantage.
The 2008 Lisbon referendum was rejected for many reasons, but one of them was fears that the EU would crack down on Ireland’s right to set its own corporate tax rate. No, no, no, they sang in Berlin, Paris and Brussels. You understood it wrong. We would never do that.
And so, after an acceptable political quarantine period, a statement by the EU heads of state and government was published the following summer, stating that the treaty “does not mean any change for any member state in the scope or in the functioning of the European Union’s competences on taxation ”.
The referendum was requested for the second time in 2009 and the declaration was converted into minutes and pinned to Croatia’s Accession Treaty to give it a legalistic fig leaf.
Certain Lisbon opponents said elements of the treaty suggest that in the future the EU would use competition and internal market laws to introduce changes in corporate taxation. But they were shouted down.
A decade later, the EU turned to competition and internal market law in an attempt to change corporate tax. To deny that what was warned has happened is pointless and only gives fuel to those who want to do even more damage to this state by wading to the periphery or outside the EU.
It happened. Let’s pretend it isn’t. In supporting a global minimum tax rate, the Commission has done quite a bit on Ireland and put national tax sovereignty on the side.
When asked about it after his Monday speech at the Dublin-based Institute for International and European Affairs (IIEA), Gentiloni portrayed this as “compensation” and chatted about differences in national systems that distort the internal market.
That was insincere. It is really the peppy tax exercise that has skewed the market, rather than the legitimate pursuit of attracting investment at a low but transparent rate. The Commission simply passed control to get something it always wanted – a lever to reduce Ireland’s tax advantages.
It could start at 15 percent. But once the principle of a global minimum rate is in place, it might be easier to raise it further in the future.
Donal de Buitléir, a former civil servant and former director general of the IIEA, then asked Gentiloni whether Europe thought it would be wise to increase the corporate tax base first before introducing a minimum rate.
Basic harmonization has been bitterly rejected by Ireland for years because it represents a clear violation of national sovereignty. Gentiloni, a former Italian prime minister, could have answered no and soothed Irish fears. Instead, he said it was “too early to answer”.
That kind of ambivalence over even deeper tax harmonization from one of Europe’s leading economic officials should have warning lights on the government dashboard that blink as red as Irish cheeks as officials swim in the waves of bigger nations around our tax lives.