Corporate Tax

US will increase stakes to achieve settlement on minimal corporate tax

The scale of US demands for an agreement on a worldwide minimum corporate tax rate is becoming clear, with part of the plan posing a threat to Irish companies with large US businesses. They could face a significantly higher tax burden associated with their US businesses if the Republic does not agree to apply an agreed global minimum rate.

In the negotiations of the Organization for Economic Cooperation and Development (OECD), the USA is pushing for an agreement on a global minimum tax rate for companies, with the G7 finance ministers agreeing that this should be “at least 15 percent”. Decisive talks are being held between the countries participating in the OECD process to see whether a political agreement can be reached in the summer.

Treasury Secretary Paschal Donohoe said he believed any deal should leave room for Ireland’s 12.5 percent rate. However, more details are emerging on the US proposals to change US tax regulations to pressure countries to adopt a global minimum. These are based on a so-called shield proposal – which stands for Stopping Harmful Inversions and ending Low-Tax Developments. This would target companies from countries that do not apply the minimum rate and that have US investments themselves.

For example, if Ireland left its corporate tax rate at 12.5 percent and the agreed global minimum was higher, Irish-headquartered companies and US operations – such as some of the large dairy cooperatives – might not be able to make normal tax deductions on profits under the proposal that are returned to their headquarters. The impact is intended to impose a US corporate rate tax on those companies’ profits in the US to pressure other countries to adopt the global minimum.

Increase

The US rate is currently 21 percent, but the Biden government wants to increase it to 28 percent. These proposals – and the Shield Plan – must all be negotiated with the US Congress, with large parts of the President’s plan being severely rejected, making the outcome unpredictable. There is speculation that the agreed corporate tax rate will be below 28 percent, but the final rate will be well above the current Irish rate of 12.5 percent.

The US government has also proposed a minimum tax rate of 21 percent on international profits of US companies to put pressure on other countries to raise their tax rates and prevent companies from shifting profits to low-tax countries. It is also likely to seek an OECD agreement on measures to encourage countries to adopt a new minimum.

Following recent G7 meetings, Treasury Secretary Janet Yellen referred to aspects of the plan that would put pressure on countries to adopt a new agreed minimum rate.

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