The introduction of a global minimum corporate tax rate could – in an “extreme scenario” – wipe out half of the Irish corporate tax base of EUR 11.8 billion, the International Monetary Fund (IMF) warned.
In its most recent post-program review of the Irish economy, the Washington-based fund assesses the impact of global tax changes on Ireland’s fiscal position.
In the worst-case scenario, with the top ten corporation taxpayers walking out of Ireland on foot a new global minimum rate, revenues could fall by as much as 50 percent, the IMF said.
Based on last year’s income, this corresponds to a decrease of almost € 6 billion.
“This is a tail risk scenario and we don’t expect it to happen,” said Khaled Sakr, head of the IMF mission in Ireland.
He said the changes would be mitigated by Ireland’s “non-tax comparative advantages” such as a skilled workforce, favorable business climate and close trade ties with the United States, Britain and the European Union.
The US has proposed a minimum rate of 21 percent for US corporations’ international profits, well above the Irish rate of 12.5 percent.
It is feared that a minimum interest rate could undermine Ireland’s attractiveness to investors.
The Treasury Department expects corporate tax revenues to drop by around EUR 2 billion by 2025 as a result of the proposed changes, although Finance Minister Paschal Donohoe has indicated the impact could be greater.
In its review, the IMF said the Irish government will need to raise more taxes to invest in education, training and affordable housing and childcare once the pandemic recovers.
The Fund said “sustainable growth” of the Irish economy would “require more investment in social and physical infrastructure”.
These “spending needs” as well as the aging of the population and high indebtedness require additional public revenues, which would require a broadening of the tax base once the current crisis has subsided.
In the meantime, Tánaiste Leo Varadkar is said to have ruled out any tax increases in the coming years.
As carbon taxes rise and local property taxes revised, he said at a parliamentary party’s meeting in Fine Gael on Wednesday evening, the government should not “give in” to an increase in income taxes.
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