OECD tax deal ‘a success for Ireland but loss for rest of world’, say economists

Joseph E Stiglitz among those critical of agreement in letter published in Le Monde

Minister for Finance Paschal Donohoe speaking to reporters, at Government Buildings last week, as he announced the ending of the 12.5% corporate tax rate

Minister for Finance Paschal Donohoe speaking to reporters, at Government Buildings last week, as he announced the ending of the 12.5% corporate tax rate

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A number of leading economists and intellectuals have claimed the Republic of Ireland is one of the few winners from the Organisation for Economic Co-operation and Development (OECD) tax deal, agreed last week, to introduce a 15 per cent corporate tax rate in more than 130 countries.

The claim, made by those including Joseph E Stiglitz, Thomas Piketty, Gabriel Zucman, Eva Joly, José Antonio Ocampo and Jayati Ghosh, is contained in an open letter published in the French newspaper Le Monde by 14 members of the Independent Commission for the Reform of International Corporate Taxation (ICRICT) to the G20 finance ministers who meet in Washington on Wednesday to sign off on the deal.

The economists argue a stronger deal on a minimum global tax of more than 15 per cent was achievable but that what has been agreed instead is essentially a “watered-down agreement that profits rich countries mainly”.

“Proposals for a global effective minimum tax of 21 per cent (or even better 25 per cent, as we advocate) have been rejected in the pursuit of the lowest common denominator of 15 per cent, a success for Ireland, a loss for the rest of the world,” they write.

Corporate tax avoidance by multinationals is believed to cost countries at least $240 billion (€208.20 billion) a year in lost fiscal revenues. The economists say $200 billion in increased fiscal revenues worldwide was possible with a 21 per cent tax rate, but only $100 billion at a 15 per cent tax rate.

‘Legitimate concerns’

“By giving priority to apply the minimum tax to the countries where the headquarters of multinationals are located, the lion’s share of the additional revenue is expected to be received by a small number of rich countries. This leaves aside the application of the principle of fairness you agreed, that corporations should be taxed in the jurisdictions where their profits are generated,” they write.

“There are legitimate concerns that such a low global minimum will turn out to be the global standard, and a reform that was intended to make sure multinationals pay their fair share will end up doing just the opposite,” they add.

The OECD agreement, which the State agreed to sign up to last week, comes into force in 2023. It sees the Republic of Ireland bringing to an end the 12.5 per cent corporate tax rate that has applied in the State since January 2003.