Donohoe warns corporate tax take could shrink by one fifth on OECD moves

Minister for Finance expresses reservations about global tax harmonisation proposals

Paschal Donohoe: ‘I do believe that smaller countries need to be able to use tax planning as a legitimate instrument to compensate for what they do not have.’ Photograph: Alan Betson

Paschal Donohoe: ‘I do believe that smaller countries need to be able to use tax planning as a legitimate instrument to compensate for what they do not have.’ Photograph: Alan Betson

 

Global changes could cut the Republic’s €11.8 billion corporate tax take by one fifth, according to Minister for Finance Paschal Donohoe.

Mr Donohoe told American Chamber Ireland, whose members represent key US investors, that the Republic would play its part in Organisation for Economic Co-operation and Development (OECD) moves to tackle cross-border tax avoidance.

He said he was confident that agreement could be reached this year, and calculated that it could cost about one fifth of the State’s corporate tax take, which reached €11.8 billion last year.

The US on Thursday proposed a a global minimum corporate tax rate of at least 15 per cent, higher than the State’s long-standing 12.5 per cent rate. The proposal has been welcomed by a number of European governments.

Mr Donohoe stressed that he had reservations about any moves towards global tax harmonisation as opposed to tackling aggressive tax planning.

He argued that any changes agreed by the OECD needed to take into account the stability and certainty that businesses needed to invest for the future.

Similarly, he said tax systems should continue to support investment in research and development.

“I do believe that smaller countries need to be able to use tax planning as a legitimate instrument to compensate for what they do not have,” he told the chamber’s global conference.

Mr Donohoe added that this included the resources and industrial heritage enjoyed by many larger states.

The Government remains committed to the Republic’s 12.5 per cent tax on company profits, the Minister said.

He noted that those employed by multinationals in the Republic paid a similar amount in income tax as did their companies on profits.

However, the Minister pointed out that it was not all one-way traffic. “Ireland is the ninth-largest source of inward investment in the US, 110,000 people are employed by Irish companies across over 1,000 locations in all 50 states,” he said.

US investors in the Republic include Pfizer, which will begin making Covid-19 vaccines here later this year, computer chip giant Intel, and software group Microsoft.

More than 180,000 people work for 800 US businesses in the Republic, while an estimated 140,000 more depend indirectly on these companies for employment.

European reception

The US proposal for a global minimum corporate tax of at least 15 per cent was meanwhile greeted with considerable enthusiasm in other parts of Europe on Friday.

“This is really a big progress,” German finance minister Olaf Scholz said as he arrived for a meeting with European counterparts in Lisbon, minutes after his French counterpart had also offered a positive reaction. “We will really have the chance that in this summer this deal and agreement that we were working on for so long can happen.”

The latest pitch in the race for an accord between 139 countries is less than the 21 per cent rate the US previously suggested for overseas earnings of its businesses, a level some nations found excessive.

OECD negotiations had been bogged down for years in ever-growing layers of technical complexity, transatlantic bickering and trade tensions. The nearing of an accord raises the prospect of significantly heftier bills for the biggest global corporations.

“The key question is not the figure, even if we can live with 15 per cent – it can be a good compromise between the expectations of all members of the OECD,” French finance minister Bruno Le Maire said as he arrived at the Lisbon meeting.

“The key question is to define a global framework for digital taxation and minimum taxation.”

EU economics commissioner Paolo Gentiloni said it was a step forward to a deal, as did Italian economy einister Daniele Franco. Mr Donohoe did not address the issue publicly in Lisbon.

Two euro zone officials at the meeting said that the US offer would find wide backing in the broader European Union. “That 15 per cent will be acceptable for all EU member states, including Luxembourg and Ireland,” one of the officials said.

The Japanese finance minister Taro Aso, speaking to reporters in Tokyo, said the US proposal represents progress, although more talks are needed. He said he expects movement toward global agreements, including on a digital tax, at the G-20’s summer meeting, but final deals may not happen until later in the year.

American Chamber

Separately, an American Chamber survey published on Friday shows that four out of five Irish people believe US companies are critical to the Republic’s future, while 94 per cent say these businesses will be vital to economic recovery.

About three-quarters of respondents said low taxes helped lure multinationals here, but 63 per cent believed that the quality of Irish workers was the number one reason US companies invested here.

However, 63 per cent of those surveyed underestimated the number of people working in US companies, saying it was below 100,000 rather than the actual figure of 180,000.

American Chamber president Gareth Lambe, who is head of social media giant Facebook in Ireland and its vice-president of international business planning, remarked that the survey showed that the public supported the contribution made by US companies to the State. – Additional reporting: Bloomberg