After this weekend's agreement among G7 finance ministers, there is no doubt that the corporate tax issue is now coming to the boil after years of talking.
While Minister for Finance, Paschal Donohoe concentrated on the potential short-term loss to the exchequer from the reform plan, the bigger issue for Ireland is the impact on attracting foreign direct investment to Ireland.
The G7 ministers signalled strong support for the two main parts – or pillars, as they are called – of the OECD plan and a crucial few months of talking now lie ahead to see if a final agreement among the 139 participating countries can be reached.
The first pillar involves countries getting the right to tax a portion of the profits relating to sales made in their territories ( the G7 suggests this would apply on 20 per cent or profits above a certain minimum).
This will mean more tax for countries with big markets and less for countries like Ireland where international headquarter operations are based. The potential cost to the Irish exchequer is an estimated €2.2-€2.4 billion, around one fifth of total corporate tax revenue and equal to two thirds of the 2021 housing budget. This is already counted in to Ireland’s budget forecasts.
The real question for Ireland is about the other part of the OECD process – so called pillar two – which is a recommended minimum global corporate tax rate. The G7 ministers made a big call, saying they favoured a rate of “at least 15 per cent”.
This commitment is "of some concern to Ireland," according to Peter Vale, international tax partner at Grant Thornton. "A 15 per cent is rate is one Ireland could probably live with, but a rate much higher than that would be more of a concern."
If a 15 per cent – or higher – rate is agreed by the OECD, Ireland would have to decide whether to increase the existing 12.5 per cent rate to the new minimum.
Crucially, US treasury secretary Janet Yellen pointed to mechanisms in the OECD agreement which would "essentially put pressure" on countries with lower tax levels to adopt the minimum rate .
These include the need for companies to make top up payments in their home country if a subsidiary had not already paid the minimum in another country, and a backstop to ensure a similar outcome via the use of tax credits if necessary.
Ireland argues it is legitimate to retain the 12.5 per cent rate to attract FDI here. But there is limited sympathy for the country’s position, given the use by companies based here of devices like the double Irish, only finally phased out last year.
And depending on the precise terms of the OECD deal and Biden’s US tax reforms – if one is reached – there may not be much advantage to keeping the 12.5 per cent rate. And the European Commission and bigger member states would try to mandate an OECD minimum tax rate as the lowest which should apply and force the hand of smaller countries like Ireland.
There is still a way to go in the talks. Vale of Grant Thornton points out that the G7 have made new proposals on pillar one of the OECD talks and there is much detail to be sorted here.
Likewise the tax plans of the US remain in negotiation with Congress. Ireland will watch and wait for now, but the 12.5 per cent tax rate is in danger.
And it seems certain now that low corporate tax will be a much less powerful tool to attract investment into Ireland in future, as the drive is on to level the tax playing field.