Ireland could lose up to a fifth of its corporate tax revenue under a proposal agreed by G7 finance ministers on Saturday, Minister for Finance Paschal Donohoe has warned.
But he said that such a loss of revenue – about €2 billion a year – was already built in to the Government’s economic assumptions.
The likely loss to the exchequer of between €2 billion to €2.4 billion is equivalent to a fifth of the State’s annual corporate tax revenue.
It is about two thirds of the total housing budget for this year or about a quarter of the annual education budget .
Finance ministers from the Group of Seven leading industrialised nations, meeting in London at the weekend, said they would back a minimum global corporation tax rate of at least 15 per cent, and put in place measures to ensure taxes were paid in the countries where businesses operate.
Mr Donohoe, who was at the meeting in his role as president of the Eurogroup of euro zone finance ministers, said his officials had already modelled the impact of the proposals for Ireland.
“That indicates that Ireland could lose up to a fifth of our overall corporate tax revenue and that potential loss of revenue is already used in our medium-term budgetary calculations,” he told The Irish Times.
The proposals have to be approved by the Organisation for Economic Co-operation and Development (OECD) in the coming months, before coming into effect. Mr Donohoe said he would continue to argue for Ireland’s 12.5 per cent corporate tax rate in negotiations with EU member states and the United States, whose treasury secretary Janet Yellen he met on Saturday.
“In the bilateral engagement that I had with the OECD and with secretary Yellen, I continued to make the case for legitimate tax competition within certain boundaries and for the role of small- and medium-sized economies in the agreement that is yet to come. And I’m going to continue to make that case,” he said.
Mr Donohoe expressed confidence that multinational companies would remain in Ireland despite any change in the tax rate. And he noted that there had been new foreign direct investment (FDI) in Ireland already this year, despite the coronavirus pandemic.
“The tax environment that is developing at the moment is one also that the multinationals are evaluating at the moment. The reason that I’m very positive about our country’s future and our economy is twofold.
Firstly it’s the longevity of the investment we have in Ireland. Much of the FDI investment in Ireland that we are referring to is investment that has now been in Ireland for many decades. It’s well embedded in terms of the physical infrastructure of our country,” he said.
“Those who are responsible for that FDI, those who are responsible for leading it, and indeed those who are responsible for domestic investment in our country, have always seen transparency from this and previous Irish governments and they have seen our long-standing efforts to be predictable and to be clear about how we will respond to change.”
The G7 ministers said that the tax should be applied at a country-by-country level, to stop multinationals shifting profits between countries to cut their tax bills.
Talks at the OECD have been under way for some time to try to reach a deal on global tax reform.
The G7 deal will now be taken up at a G20 meeting in Venice in July, with hopes to strike an accord on the detail by the autumn.
“The chances of a global deal have significantly increased,” EU economy commissioner Paolo Gentiloni said after the announcement of the G7 agreement in London.
He added that a global deal could now be reached in July, and the next step would be to win the support of the wider G20 and the other countries involved in the OECD tax talks.
“Today, in London, we have taken a big step towards an unprecedented global agreement on corporate tax reform,” he said.
This means the G7 ministers support the two main arms – or pillars – of the OECD talks, making agreement look likely over the summer, even if many important details remain to be agreed.
The ministers also agreed to move towards making companies declare their environmental impact in a more standard way so investors can decided more easily whether to fund them.
Rich nations have struggled for years to agree a way to raise more revenue from large multinationals such as Google, Amazon and Facebook, which often book profits in jurisdictions where they pay little or no tax.
US president Joe Biden’s administration gave the stalled talks fresh impetus by proposing a minimum global corporation tax rate of 15 per cent, above the level in countries such as Ireland but below the lowest level in the G7. – Additional reporting Reuters