When the Taoiseach can’t say what the tax rate will be, you know the pressure is on

There is no doubt that the way is being prepared to make what would be an historic change in Ireland’s corporation tax regime. But while the time to make the big call looks like it is coming, it has not yet arrived. And considerable uncertainty remains about the much-discussed international tax deal that will determine Ireland’s options. Expect to see senior ministers wriggling on the fence here for a few months to come

One thing is for sure. If there is a deal that the vast bulk of OECD members sign up to, Ireland will too. Minister for Finance Paschal Donohoe said this week that Ireland could decide to stay outside such as deal. It could, but it is very unlikely that it would.

The gentle language currently being used to try to coax Ireland inside the tent would soon turn aggressive. And there are mechanisms promised in the deal to put pressure on those countries that do not sign up to do so. These include provisions which would really hurt Irish companies operating in the US – and also effectively make our 12.5 per cent rate for US firms irrelevant by forcing them to pay a top-up in the US.

We would be the King Canute of global tax with the tide of reform flowing past us.

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What happens to the OECD plan if the US deal gets stuck in Congress? Nobody knows

The preparing of the way for change has been underway for some time now. Most recently the Tax Strategy Group papers mentioned Ireland's commitment to get a deal – notwithstanding some issues with the draft agreement. The Minister for Finance has been trying to walk the line between being enthusiastic and awkward at the same time.

Taoiseach Micheál Martin's comment in the US that he could not guarantee US companies that the 12.5 per cent rate would remain, while a logical conclusion of what Donohoe had been saying, was nonetheless significant politically. So was a submission by the American Chamber of Commerce Ireland to a Department of Finance review on the OECD plan, which said that if there was a deal, Ireland could hardly remain outside it. This gives Donohoe vital cover, if a deal is finally done.

And yet while the way is being prepared, it is still not clear how this will all play out. The vast majority of the 139 countries in the OECD talks have signed up to the draft agreement, rejected by Ireland largely on the basis of two words – the “at least” before the proposed new minimum effective corporate tax rate of 15 per cent.

Everyone is now watching the US. The Biden administration gave energy to the OECD talks early this year and is pushing countries, including Ireland to sign up. But we have still to see what his administration can get through Congress, where the corporate tax issue is tied up in haggling on a massive economic stimulus plan.

Tánaiste Leo Varadkar opened up the possibility of a dual corporate tax rate structure here, with a higher rate applying to big companies with turnover in excess of €750 million

What happens to the OECD plan if the US deal gets stuck in Congress? Nobody knows.

Ireland's goal, in the midst of this, is to try to maintain some control of our own tax policy. If Ireland does sign up to a deal, the Government will want it to be a once-off change, not some agreement which could lead to further pressure to change in years to come, due to changes in Europe or the US.

Public spending Minister Michael McGrath said Ireland needed “absolute certainty”. This will primarily involve the new minimum rate. But the big risk for Ireland is coming with the pressure to sign up before this certainty is fully available.

Tánaiste Leo Varadkar opened up the possibility of a dual corporate tax rate structure here after a deal, with a higher rate applying to big companies with turnover in excess of €750 million and the old 12.5 per cent applying to the remainder. This could be significant for middle-ranking Irish companies, though many SMEs don't pay much by way of corporation tax.

But there are complications. Presumably the EU would need to be happy that this was not creating unfairness in terms of competition.

And Ireland would also need to be clear that this would not trigger US measures to impose higher taxes on Irish companies operating in America.

This kind of detail is still a way down the road. For now, Ireland will try to sit tight as the corporate tax story reignites moving into the autumn.

From its perspective, a collapse of the OECD deal would also not be a good outcome. This would lead to countries moving on their own to introduce new rules, likely pressure for a major EU reform plan and potential tensions between the EU and the US, with Ireland stuck in the middle.

One of Ireland’s key calling cards has been certainty and stability in the tax arrangements for international investors. Now this is under threat like never before. When the Taoiseach meets US investors and can’t tell them what the Irish tax rate will be in the next year or two, it is clear that we are now in a difficult spot.