Donohoe expresses reservations about global minimum corporate tax rate

Minister also insists Ireland’s 12.5% rate is fair and within ambit of healthy competition

Minister for Finance Paschal Donohoe said small countries ‘need to be able to use tax policy as a legitimate lever to compensate for advantages of scale, location, resources and industrial heritage[...] enjoyed by larger countries’. Photograph: Sam Boal/Rollingnews.ie

Minister for Finance Paschal Donohoe said small countries ‘need to be able to use tax policy as a legitimate lever to compensate for advantages of scale, location, resources and industrial heritage[...] enjoyed by larger countries’. Photograph: Sam Boal/Rollingnews.ie

 

Minister for Finance Paschal Donohoe has expressed new reservations about the possibility of a global minimum corporate tax rate, while insisting any new deal must “accommodate” Ireland’s 12.5 per cent rate.

He said that proposals, which have recently emerged for high minimum effective tax rates, had confirmed his initial reservations about the plan.

The US has proposed a minimum rate of 21 per cent on the international earnings of US companies, which is way above the Irish rate.

Speaking at a seminar on international tax hosted by the Department of Finance, Mr Donohoe underlined his belief that small countries “need to be able to use tax policy as a legitimate lever to compensate for advantages of scale, location, resources, industrial heritage and the real, material and persistent advantage enjoyed by larger countries.”

He said Ireland’s long-established corporate tax rate of 12.5 per cent was “a fair rate and within the ambit of healthy tax competition”.

“It is a rate that can contribute to exchequer revenues for investment in infrastructure and capacity, and one that can also stimulate investment, growth and innovation, which are core to Ireland’s industrial policy,” he said.

While acknowledging that an international agreement on tax could bring stability, he said it must “accommodate” Ireland’s headline rate.

This is the first time Mr Donohoe has responded directly to new US proposals for an effective minimum rate.

A major shake-up of the way corporation tax is collected is on the horizon, with the US now seemingly backing reform at a multilateral level.

The concept of a global minimum tax rate has been part of OECD’s “pillar two” negotiations on corporate tax reform, which are due to conclude this year.

The fear is that a minimum rate could undermine the uniqueness of Ireland’s offering.

Strong proposal

Pascal Saint-Amans, who heads the OECD’s tax department, told the conference that a “strong” minimum tax proposal was necessary for agreement at OECD level, though he did not mention a rate.

Mr Donohoe acknowledged that the current reform proposals were likely to shrink Ireland’s corporate tax base by about 20 per cent or €2 billion.

“There are risks in an agreement, but the risks may be greater with continued uncertainty and instability if there is no agreement,” he said.

“There will be twists and turns in this negotiation over the months ahead and I think it is in everyone’s interests to have a balanced agreement,” Mr Donohoe said.

The Department of Finance believes corporation tax receipts will be roughly €2 billion lower by 2025 on foot of the proposed changes.

The department’s latest stability programme update factors in a €500 million cost to annual corporate tax revenue in each year from 2022 to 2025.

However, the department still expects total corporation tax receipts to grow from €11.6 billion this year to €12.5 billion by 2025, a smaller rate of increase than seen in recent years.