Donohoe seeks EU clarity on whether dual corporate tax rates may be possible

Minister confirms total budget package of €4.7bn is available

Paschal Donohoe said the public could be ‘increasingly confident’ that the ‘very worst of the pandemic may be behind us’. Photograph: Gareth Chaney/Collins

Paschal Donohoe said the public could be ‘increasingly confident’ that the ‘very worst of the pandemic may be behind us’. Photograph: Gareth Chaney/Collins

 

Minister for Finance Paschal Donohoe has said he is engaging with the European Commission to clarify whether Ireland could continue to levy a 12.5 per cent rate on companies with turnover of less than €750 million, if it signs up to an international plan for a minimum 15 per cent global rate for companies generating more than this amount a year.

Tánaiste Leo Varadkar highlighted earlier this week that Irish-based companies with turnover below that threshold would continue to enjoy the 12.5 per cent rate if the State opted into the Organisation for Economic Co-operation and Development (OECD) plan, unveiled in June.

The document says that a rate of at least 15 per cent would only apply to companies with annual revenue of more than €750 million.

However, Mr Donohoe conceded under sustained questioning from Sinn Féin TD Pearse Doherty at an Oireachtas budgetary oversight committee hearing on Thursday that the possibility of operating two corporate tax rates is one of a number of issues that he was engaging with the commission on.

“It is an important question of detail that I will want to answer if we make a decision to enter the OECD agreement,” Mr Donohoe said.

The Minister said that the State faced “very significant consequences” whether it decided to sign up or opt out of an international agreement.

Few holdouts

Ireland is one of only a handful of countries holding out against the OECD plan, with Mr Donohoe having repeatedly highlighted that the wording “at least” 15 per cent left open the possibility that it could be higher.

However, Mr Donohoe told the committee said that the Government would have to consider other key issues “if we get to the point in the coming weeks, or maybe later on in the year” of deciding whether to sign up to a global tax deal.

These include the reputational consequences of being a rare country outside an agreement, which, he said, “is justified” at the moment as he seeks certain clarifications.

“It is also worth noting that at least being in an agreement does carry with it our continued ability to influence corporate tax policy inside the [OECD] forum within which global decisions are made,” he said.

Budget 2022

Addressing the upcoming budget for 2022, Mr Donohoe reiterated that a total package of €4.7 billion was available. “On the expenditure side, core spending will increase by €4.2 billion, including €1 billion for entirely new measures. The remaining €3.2 billion will allow for demographic pressures, public pay increases and a significant increase in capital spending of some €1.1 billion,” he said.

A further €500 million tax package will be delivered as part of Budget 2022, he said, indicating that there will be a widening of income tax bands to protect take-home pay as households are dealing with the spectre of inflation, particularly in energy bills.

To date, the Government has made a total of €48 billion available to mitigate the worst impacts of the pandemic, he noted. More than €17 billion has been spent on the three main income and business support schemes: the pandemic unemployment payment, the employment wage subsidy scheme and the Covid restrictions support scheme. These supports are set to be wound down as the economy recovers.

Mr Donohoe said the public could be “increasingly confident” that the “very worst of the pandemic may be behind us”, unless a vaccine-resistant variant of Covid-19 emerges.