Economy

Wherefore the OECD’s global corporate tax deal?

Momentum in the US-led project has weakened

Paschal Donohoe spoke in favour of progressing the tax plan at this week’s gathering of euro area finance ministers. Photograph: Valeria Mongelli/Bloomberg

Wed Jan 19 2022 - 11:59

Crucial momentum was lost in the Organisation for Economic Co-operation and Development (OECD) global corporate tax deal before Christmas. This occurred when the Biden administration failed to get its Build Back Better Bill – including provision for the United States equivalent of a 15 per cent minimum corporate tax rate – through the Senate.

Now it is clear that implementation of the deal in the European Union also faces challenges, as some countries ask whether the US will actually be able to deliver.

The OECD deal includes two parts – the 15 per cent minimum tax rate and a change in where big multinationals pay some tax. It was a delicate compromise and one to which the Republic only signed up late in the day when there was a commitment that the minimum rate would be 15 per cent, and not “at least 15 per cent”.

Doubts over the ability of the US to pass the required legislation were quoted by Poland, Hungary and Estonia at a meeting of EU finance ministers on Tuesday. They argued that if the EU signed up now to the minimum tax plan it would lose its leverage with the US, particularly in relation to the other part of the deal relating to the reallocation of taxing rights.

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France, which now holds the presidency, is pushing hard for progress on the minimum tax plan by March, ahead of April's presidential election. The key question now is whether some of the objecting countries will block progress, as EU tax legislation requires unanimity.

Donohoe in favour

From the Republic's point of view, passing of the directive would settle the minimum tax rate issue and avoid any future moves to introduce a higher rate. And so Minister for Finance Paschal Donohue spoke in favour of progressing.

The other part of the OECD deal – the reallocation of taxing rights – would cost the Irish exchequer. However if this part of the deal collapsed, many EU countries would go ahead with their own digital taxes, also costing Ireland revenue and likely sparking tensions with the US.

With the Biden administration – having championed the OECD deal – now struggling to make progress at home, the fate of five years of OECD negotiations hangs in the balance.

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