Economy

OECD talks were always an exercise in damage limitation

Paschal Donohoe has argued that small states should retain some ability to compete via lower taxes

The removal of the ‘at least’ from the draft OECD deal – the original text had said the minimum rate would be at least 15% – helps the Irish argument that exactly this rate should be introduced in the EU, rather than a higher rate of say 18%. Photograph: Getty Images

Thu Oct 7 2021 - 05:57

What would victory look like for the Irish Government in the OECD talks?

To judge this it is necessary to realise first that – looking at the purely Irish viewpoint – this was always a game of damage limitation. And we should note that there are, of course, wider issues of politics and taxation fairness here too.

The removal of the "at least" from the draft OECD deal – the original text had said the minimum rate would be at least 15 per cent – is useful for Ireland. It helps the Irish argument that exactly this rate should be introduced in the EU, rather than a higher rate of say 18 per cent.

This is in line with Finance Minister Paschal Donohoe's argument that small states should retain some ability to compete via lower taxes. It appears he has some comfort from the commission on how the EU directive will be framed – along the lines that it will not be " gold-plated" with a higher rate and more rules for Europe – and it is worth seeing what is said on this on Thursday.

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There are two other factors to look out for in the Cabinet decision. One is what is said about whether the 12.5 per cent rate can be retained for firms under the €750 million annual turnover figure set by the OECD. This is likely to be flagged, but may require further discussions with the European Commission.

The other is whether there is a new estimate of the impact on tax revenue.

Previously the Department of Finance estimated annual losses of more than €2 billion on the part of the plan which moves some taxing rights on profits to countries where goods are sold via digital platforms. This could conceivably rise depending on the final figures, but Ireland will also get some extra cash from the increase in the tax rate, possibly around €1.5 billion a year, though the exact amount is impossible to calculate precisely.

That is on a static analysis of the current tax base. What we don’t know is the impact on future FDI flows.

And the final point to note is that even if everyone signs up on Friday the OECD deal will not be done until the US Congress signs up.

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