Ireland has long argued that its appeal to multinational corporations is well above the corporate tax rate of 12.5 percent. We may find out in a moment.
US Treasury Secretary Janet Yellen has resumed OECD talks on corporate tax reform, removing the demand that US tech multinational companies may reject parts of it. Now the race should be finished by the middle of this year. Ibec chief economist Gerard Brady said that while the prospects for an agreement remain, the excitement from the US has improved the prospect significantly.
Finance Minister Paschal Donohoe has long argued that an OECD deal is in Ireland’s best interests. This is because a breakdown in talks would cause EU countries to collect their own digital sales taxes, which would likely lead to disputes with the US and potentially threatening new trade wars. A failure of the OECD could also lead the EU to revive its own corporate tax harmonization plans, which is also dangerous for the state.
However, the OECD process also harbors risks. One of these concerns Ireland’s corporate tax revenue, as the first pillar of the OECD talks suggests that companies would pay tax in markets where they make digital sales. This would reduce the amount paid in countries like Ireland where sales are managed from the international headquarters.
However, the greater risk could fall under the second pillar of talks, which include a proposed global minimum tax rate. Yellen said the US is in favor of a “robust” regime in this area. The danger to the republic is that the minimum rate will be set higher than our rate of 12.5 percent, effectively removing it to attract investment here. A rate of 15 percent has been speculated, and the Biden government has been ordered to raise corporate taxes.
According to Brady, the OECD process could pose a competitive challenge to the Irish business model and investment is required in other areas that are critical to attracting foreign direct investment, such as: B. Research, Education and Infrastructure. We would no longer have the same competitive advantage in taxes.
Paschal Donohoe faces a high stakes game. He’ll want a deal, but what is he willing to sign up for?