Ireland’s second largest opposition party has backed a “small increase” in the country’s corporate tax rate, a sign that Dublin’s longstanding political consensus on multinational corporations is crumbling after the G7 agreed on a plan for global tax reform.
Ireland’s overall tax rate of 12.5 percent has been central to its success in attracting multinational companies for many years. But Dublin now faces a major challenge after the G7 group of leading nations this weekend endorsed a worldwide minimum levy of 15 percent.
Irish Labor Party’s finance spokesman Ged Nash told the Financial Times he was calling for “national talks” on a possible increase.
“A small increase [in Ireland’s corporate tax rate] I think we can live with that, ”said Nash. He added that although “we are not even close” because the OECD has not yet reached a global agreement, “the first thing we need to do is build political consensus here in Ireland”.
Nash said he would raise the issue with Irish Finance Minister Paschal Donohoe in Parliament next week.
“The minister has to deal with Parliament about the options for Ireland,” said Nash. He added that enough information should be given to the opposition to weigh the pros and cons of raising the Irish corporate tax rate to the worldwide minimum or defending the existing levy that all political parties have long supported.
If global agreement is reached on a higher rate than Ireland’s current tax rate and Dublin decides not to implement it, other countries could reclaim the remaining tax revenue, according to the discussed plan. This would be politically inedible in Ireland, some observers warned.
Ireland levies almost € 12 billion in corporate tax annually on a total tax revenue of around € 57 billion. In a report released last month, the Dublin Economic and Social Research Institute warned that higher tax rates could hurt Ireland’s small and medium-sized enterprises, which employ around two-thirds of the country’s workforce.
“The 12.5 percent tax rate has become almost an article of faith in Irish politics,” said Gary Murphy, director of the School of Law and Government at Dublin City University. Even Sinn Féin – the largest opposition party and the left-most party – has been cautious about raising it, he said.
But on Tuesday, Pearse Doherty, a finance spokesman for Sinn Féin, told the FT that while he was “not in favor” of an increase in the Irish tax rate, he had asked the Treasury Department for a detailed analysis of whether it would be “good” for Ireland only multinational corporations adopt a rate of 15 percent and whether such a measure is possible.
He also wanted to see simulations to “generally” increase the corporate tax rate and keep it at 12.5 percent, he said: “We have to go in there” [international negotiation] with open eyes.”
After Saturday’s G7 meeting, Donohoe told reporters that he would continue to campaign for legitimate tax competition.
An Irish government official told the FT that while Dublin wants to defend the 12.5 percent rate, it could be “hard to resist” for Ireland to raise it if the US adheres to the global 15 percent minimum.
The Irish Treasury Department estimates Dublin could lose € 2 billion annually to corporate tax reform, although Donohoe stressed on Saturday that the potential cost was already included in Ireland’s economic projections. The ministry declined to comment other than referring to the minister’s statement.
Talks between 139 countries at the OECD in Paris continue with the aim of reaching an agreement this year.