A tale of two Pasc(h)als on global corporate tax reform

Donohoe has set out his stall, calling for a political accord on the tax competition issue

Minister for Finance Paschal Donohoe and OECD talks chief Pascal Saint-Amans – a short story of two political perspectives.

Minister for Finance Paschal Donohoe and OECD talks chief Pascal Saint-Amans – a short story of two political perspectives.

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Minister for Finance Paschal Donohoe set down an important marker on Ireland’s position on the Organisation for Economic Co-operation and Development (OECD) tax talks in a speech on Wednesday.

His central point was that small countries should have the ability to compete – using tax – to attract investment. He said any agreement must “accommodate” the Irish 12.5 per cent rate, suggesting the Government will not move on this.

He expressed reservations about recent talk of minimum effective tax rates – the Biden administration has proposed a minimum 21 per cent rate on the international earnings of American companies. This would mean US companies would pay 12.5 per cent tax in Ireland and a top-up of 8.5 per cent in the US.

Long negotiations lie ahead – both in the US and at OECD level, where a global minimum is on the table. The proposals as outlined could seriously affect Ireland’s ability to use its 12.5 per cent tax rate to compete for foreign investment. Already many of the special aspects of the Irish tax regime, including the controversial double Irish, have been phased out. And international changes have limited the ability of companies to shift profits between jurisdictions. But more change is coming – and for a start these may cost Ireland up to one-fifth of annual corporate tax revenue.

Global minimum

The Minister said he believes the 12.5 per cent rate is a fair balance – providing an incentive for foreign direct investment and resources for the Irish exchequer. Small countries should be allowed to compete via tax to account for disadvantages in other areas like location and scale, he said.

The man heading the OECD talks, Pascal Saint-Amans, told the same seminar that he believed the talks needed to arrive at a “strong” proposal for a global minimum. While he did not show his hand, it is likely that he sees a compromise minimum being higher than 12.5 per cent. Despite his commitment to a 12.5 per cent rate, a higher global minimum would raise questions for the Irish Minister.

So Donohoe has set out his stall, calling for a political accord on the tax competition issue. It will have support from many other smaller countries. But the big players, especially the US, are now pushing hard for agreement. The game is on.

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