Ireland caught in a squeeze on corporation tax reform

Trump tax initiative provided the template for latest reform proposal

International agreement on a global minimum corporate tax could be finalised at the summit of the G20 in Venice next month. An historic breakthrough has come with stunning speed, in just two months since US President Joe Biden endorsed the plan.

French and Irish reaction to the accord, which still has no formal name and received initial approval at the meeting of G7 finance ministers in London last week, could not have been more different. There was joy at the French finance ministry in Bercy but consternation at the Irish Department of Finance in Upper Merrion Street.

Pierre Moscovici has done a great deal to promote fiscal harmonisation over more than two decades, as French minister for European affairs, as finance minister and then in a 2014-2019 stint as EU commissioner for finance. Moscovici often negotiated with Irish leaders and offers this explanation for divergent French and Irish attitudes: "France sees itself as the champion of fiscal justice, and Ireland sees itself as the champion of fiscal competition."

The French obsession with tax justice is deeply rooted in history, says an adviser to President Emmanuel Macron: "The French revolution started as a revolt over fiscal injustice and privilege, because the nobility paid no tax," he says.


The current French finance minister Bruno Le Maire hailed the accord as "the end of 20 or 30 years of fiscal dumping". This correspondent first heard of "le dumping fiscal" when then taoiseach Bertie Ahern visited Paris in the late 1990s. A whole generation of Irish leaders have since been hectored by the French over Ireland's low corporate tax rate.

Moscovici insists the argument was never about Ireland's corporate tax rate of 10 and then 12.5 per cent, (compared to a current French rate of 31 per cent), but rather about Ireland's practice of negotiating sweetheart deals with digital giants such as Apple.

“What we were asking was that the rate be effectively 12.5 per cent, and not less than 1 per cent.”

Moscovici says he was actually sympathetic to the argument he heard repeatedly from Irish finance ministers, which he summarises: “Thanks for the lecture, but we have no industry. We are a little country and our advantage is to be able to attract companies through the quality of our work force, our standard of living and our corporate tax rate. You have other advantages, and you want us to give up one of ours.”

‘Absolute obsession’

In the past, French officials accused the Irish of growing fat on EU funding, and then treacherously using low corporate tax to siphon off business from the rest of the bloc.

“It was an absolute obsession with them,” says an Irish official who negotiated with the French in the 2000s. “They thought a massively disproportionate share of foreign direct investment (FDI) was going to Ireland, that there was a gravitational pull toward Ireland, and that a significant amount of FDI would come to France if Ireland raised its corporate tax rate.”

More recently, there has been a suspicion on the part of some Irish officials that France would seek payback on the corporate tax front for its unflinching support for Ireland through the Brexit process. Moscovici denies there has been even an implicit link. “France would have supported Ireland in any case,” he says. “Implicit doesn’t carry much weight in politics, especially if the party concerned doesn’t hear or doesn’t want to hear.”

Franco-Irish relations have always been warm and friendly, but discord over corporate tax has been a constant irritant.

Moscovici travelled to Dublin in the mid-2010s to discuss in Dáil Éireann two EU directives he had pushed through on fiscal transparency. “I explained that the directives were not hostile to Ireland, and every single TD was against me. It was an extremely difficult session. There were a lot of questions about compensating Irish losses.

“When it was over, they said, ‘Come on. Let’s have our picture taken for a tweet’. It was a little like rugby. You bash each other hard, and afterwards you’re all buddies. For me it remains a funny, nice moment.”

French zeal for tax justice was rekindled by a question to the government in August 2017. A deputy in the National Assembly seized on media reports that the US rental website Airbnb paid no tax on the huge profits it made in France. “The government is working for fair taxation of all companies,” finance minister Bruno Le Maire said. “European tax harmonisation is a priority.”

Le Maire promised that “the notion of digital fiscal presence” would be addressed.

In his landmark speech on Europe at the Sorbonne the following month, Macron mentioned the EU Commission's attempt to force Apple to pay €13 billion in back taxes to Ireland – an issue that is still not resolved. He praised Moscovici and competition commissioner Margrethe Vestager for "pushing certain actors and certain countries" – a clear allusion to Ireland.

“We cannot allow structural funds to finance lower corporate tax rates. That is Europe backwards,” he said. Divergence in corporate tax rates “feeds a form of disunion, breaks apart our [social] models”, Macron said. “It creates fragility throughout Europe.”

He asked that access to EU cohesion funds be conditional on respect for minimum corporate tax rates. “One cannot benefit from European solidarity and play against the others,” he said to applause.

The French crusade for tax harmonisation continued. Le Maire made an impassioned plea for "taxation that meets the challenges of the 21st century" at the Ecofin summit of EU finance ministers in Sofia in April 2018. At Meseberg, Germany, two months later, President Macron and Chancellor Angela Merkel declared their support for the EU Commission's attempts to create a Common Corporate Consolidated Tax Base, known as the CCCTB, and to strive for an EU accord "on the just taxation of the digital sector".

Franco-German and EU efforts to harmonise corporate tax went nowhere. Though Ireland was not the only opponent, it was the most visible and vocal. Minister for Finance Paschal Donohoe felt secure in the knowledge that any change in fiscal policy required a unanimous vote. Since Ireland would never vote for an EU-wide corporate tax policy, it could not happen.

Tax forum

Ireland said the process on tax reform at the Paris-based Organisation for Economic Cooperation and Development, not the EU, was the proper place for negotiations. By preferring the OECD as the forum for tax matters, Ireland could hope that the process of tax harmonisation would drag on for decades, and that even if an agreement was reached, it would still leave room for tax optimisation.

But by thwarting the EU process, Ireland and a small group of like-minded EU partners inadvertently favoured the process that has culminated in the present agreement.

To its credit, Ireland subscribed to the OECD’s first BEPS agreement in 2015. Most terms in the corporate tax saga require two translations, from the acronym into English, then into layman’s language. BEPS stands for Base Erosion and Profit Shifting, in other words, tax avoidance.

Under the 2015 agreement, Ireland ended the legal but highly contestable “Double Irish” mechanism, which enabled companies incorporated in one place but managed in another to be taxed in neither.

Macron and Le Maire were on the offensive again at the G7 summit in Biarritz in August 2019, where they clashed with Donald Trump and then US treasury secretary Steve Mnuchin over the imposition by France and several of its European partners of national digital services taxes on internet giants, known in France as the "Gafam tax" (for Google, Apple, Facebook, Amazon and Microsoft). These taxes will remain in place until the new agreement takes effect, if approved, probably in another two to three years, says the finance ministry.

The two pillars of the current accord – that multinational corporations pay a proportion of the global corporate tax in those countries where they earn the profits, and the establishment of a minimum rate – were already included in Macron’s demands at Biarritz. Trump was so angry that he opened a “section 301” investigation against France for unfair trade practices. That process has been suspended by the Biden administration.

“France has fought body and soul for international tax reform that meets the challenges of the 21st century,” says a source at the finance ministry.

Ironically, it was Trump – not a man whom one normally associates with tax justice – who in a sense instigated the recent agreement on corporate tax reform.

Trump pushed through the US Tax Cuts and Jobs Act in 2017. It was the US, under that legislation, that established the world’s first global minimum tax on what it appropriately called “Gilti”(Global Intangible Low-Taxed Income). The move was motivated not by altruism, but by Trump’s desire to collect some of the billions that were eluding US treasury coffers so he could finance domestic tax cuts.

Because all attempts to achieve tax harmonisation within the EU had been frustrated, France and Germany together asked the OECD to work on a proposal for a universal corporate tax, modelled on Trump’s precedent. The OECD transformed the BEPS process, which started in 2013, into the awkwardly named Project to Address the Tax Challenges of Digitalisation.

The main difference between Trump’s Gilti regulations and the new agreement is that Trump’s left more wriggle room by taxing average profits, while the current international agreement seeks to tax all profits.

The OECD process came to a temporary halt during Trump’s last year in office, when the US demanded a “safe harbour clause” that would have allowed US multinational corporations to opt out.


More than 100 economists and international tax lawyers have worked at the OECD since 2019 to elaborate the present agreement. Many details remain to be worked out, including the actual minimum corporate tax rate. At the insistence of France and Germany, the agreement says “at least 15 per cent”. The French finance ministry is lobbying to have the rate increased.

At this stage, there is nothing Ireland can do to block agreement, which will be adopted by consensus. Statements by Paschal Donohoe seem to suggest that small countries whose livelihood is affected by such a measure should be compensated. Governments will have the choice of imposing the minimum corporate tax rate, or not. But if they do not, the tax will be collected by someone else.

The jury is out as to whether multinational corporations currently based in Ireland would move elsewhere following the introduction of any such measure. The Élysée points to studies indicating that “Ireland will gain in prosperity and fiscal revenue” from the tax corporation agreement.

Moscovici is sceptical. “I don’t think all those multinational corporations will remain in Ireland,” he says. “I don’t see how Ireland can resist the movement towards a global minimum corporate rate.”

Bruno Le Maire has recognised that Ireland’s economic model “is thrown into question” by the new agreement, says an adviser. “We must reflect on it and not abandon Ireland. The minister is fully aware that we have to discuss it with them.”