Last week, about 150 leading Irish entrepreneurs gathered in Killarney for a retreat as part of EY’s annual Entrepreneur of the Year awards programme.
The second last speaker to the well-heeled gathering was Minister for Finance Paschal Donohoe, who participated in a question and answer session with EY’s managing partner Frank O’Keeffe on the final night of the Kerry retreat.
And he gave some interesting insights to a "remarkably intense" few weeks, that involved finalising Budget 2022 while also concluding the high-stakes negotiations with the Organisation for Economic Co-operation and Development (OECD) and others on a plan to introduce a global minimum corporate tax rate.
You will recall that in July, Ireland declined to sign up to the original draft produced by the OECD process, largely because the language of “at least” 15 per cent potentially opened the door to further increases down the track. Instead, Ireland wanted it to be a minimum of 15 per cent in return for giving up our cherished 12.5 per cent rate.
We were one of just nine countries not to sign the draft deal – others included Estonia, Hungary, Barbados, Saint Vincent & the Grenadines, Kenya and Nigeria. So not a great look for the country.
Amid massive pressure from other EU member states, notably France, Ireland had successfully kicked the corporate tax can down the road for years. But as noted by Donohoe last week, two keys things changed – the Covid-19 pandemic, which blew a massive hole in national budgets, and the election of Joe Biden as US president.
According to the Minister, that changed the debate from being one about the digital economy to a wider discussion on corporate tax.
“At the middle of last year it became more evident to me that the conclusion would happen sooner than I originally thought,” Donohoe told the entrepreneurs.
Donohoe reckoned he had one key card to play. “While there was a lot of focus on whether Ireland would go in, the broader politics of it all was that Ireland entering into the agreement gave it a very high chance of the agreement happening. Very high.
“Once we go in that would change the politics of it very significantly in the European Union. I knew that and it gave me an understanding of what we would need to achieve, and what would be the capital our country would have to use to secure what we needed. Most of this year has been taken up dealing with that.”
Donohoe invested a lot of time in contacts with US treasury secretary Janet Yellen, the OECD, the European Commission and other national finance ministers. And he used his role as president of the Eurogroup of finance ministers to access G7 and G20 gatherings.
“The period from July until the middle of last week was a really intense period of engagement with a number of my political colleagues.
“When Ireland entered [the OECD] deal on October 7th] that sent out a message that this agreement was going to happen. We knew that and those who wanted us to come into the agreement knew that as well. It’s a massive change.”
He was also clear that while the budget was important in terms of framing policy for 2022, the corporate tax agreement would be the most important policy measure for the country for “probably the next three to four decades”.
Will there be further increases?
Has the OECD deal put the intense focus of recent years on our corporate tax rate to bed once and for all, or merely opened the door to further rises down the road?
“I believe that as far into the future as I can politically see we will be consumed with implementing this agreement. If I’d signed up to ‘at least’ in July, the question to me wouldn’t be about what’s going to happen in 10 years time. It would be what could happen in a year’s time, which is why I couldn’t sign up to the agreement.
“As I look at it now, I believe my generation will be all about making the agreement happen. To go beyond the agreement does pose a number of new political challenges and issues that will make a step beyond it harder than this step. That challenge is the higher the rate goes up, the more other countries are affected by it, and the more their relative competitiveness will diminish.
“The more you go beyond where we are the more countries will feel like I did in this process. In any event, for any future agreement to be implemented within the European Union requires unanimity . . . everybody has to agree to it.
“If we were all to meet in many years time the focus will be on how to implement this agreement, not the next one. And if you even look at this process, it has taken nine to 10 years to get to this point.”
Kudos then to Donohoe and his team of officials from the Department of Finance and Revenue.
Of course, other questions remain to be answered. How will it impact our corporate tax receipts, which this year are forecast to hit a record €13.9 billion? And how will large multinationals view Ireland as a location for investment with a global framework on corporate tax now in place. They, too, will take years to play out.