The discussion about the future of corporate tax has reached a sensitive point. Treasury Secretary Paschal Donohoe had further talks with Treasury Secretary Janet Yellen on Wednesday in which she underscored the unique opportunity for him to reform the international system of corporate taxation. So the pressure is increasing on Ireland.
Government ministers this week underlined that Ireland wants to find a way to sign the agreement. Better, as Tánaiste Leo Varadkar put it, “to be in the tent”. However, certainty is an issue, particularly when it comes to the global minimum tax rate and whether US Congress can pass laws that are in line with key provisions of the global treaty.
The timing here is complicated and there is no guarantee that there will be no clarity on what will come through Congress before the key meetings of the Organization for Economic Co-operation and Development (OECD) in October. And if the most important laws get bogged down in Congress, it is not clear whether the OECD process will stall.
A deal, of course, is long overdue and would help to close off many of the avenues that large multinational corporations have taken to cut their tax bills. Also part of what is going on is an argument about where companies pay taxes and how much they pay. The negotiators are publicly calling for reforms while privately fighting to protect their own patch and treasury.
Depending on how this develops, Ireland could soon face some crucial decisions. It is not credible that Ireland could stay outside of an international agreement and it is clear that the government paved the way for possible change. However, she wants to be clear about what she is registering for, especially with regard to the exact minimum rate – previously only defined as “at least 15 percent”.
Political capital is used up in this struggle. Ireland’s tactics are likely to be forgotten soon when the country signs a deal in the coming months. But there are uncomfortable judgments about how to tackle the endgame. Outplaying Ireland’s hand – which is not particularly strong – remains a real risk.
The next few weeks will likely tell a lot. Either the events in the US will give the OECD deal a new dynamic, or a delay in Congress will cause further delays.
While signing an agreement presents challenges, the prospect of no agreement could be worse for Ireland. In this scenario, countries will try unilaterally to achieve the same results, tensions between the European Union and the US are possible – with Ireland in the middle – and the EU could try to revive its own tax reform agenda. For Ireland, this is still a damage control exercise.