Give me a crash course in . . . Ireland holding out on the OECD tax deal

Donohue objecting to global minimum tax for multinationals under agreement

What is the deal about and will Ireland sign up? Photograph: Eric Piermont/AFP/Getty

What is the deal about and will Ireland sign up? Photograph: Eric Piermont/AFP/Getty

 

So, there is a deal on taxing big multinationals but we haven’t signed up?

Yes, 130 of the 139 countries negotiating the agreement have signed an outline agreement as part of negotiations at the Organisation for Economic Co-Operation and Development (OECD). Ireland didn’t do so, but will remain part of the talks and Minister for Finance Paschal Donohoe has said he hopes there will be an outcome which Ireland can support. It is high-stakes political stuff, though. There is big pressure from the United States and the big European Union countries to get the deal through. And the other hold-outs are not exactly giants of international commerce – including, among others, Estonia and Hungary and a couple of Caribbean tax havens.

What is the deal about?

There are two main elements. The first is that in future big multinationals would pay some tax in markets where they sell through digital channels but have no physical presence. The current system of tax was developed after the first World War and obviously didn’t foresee the internet and online shopping.

The second part of the deal is an agreement that multinationals would pay a minimum tax on profits of at least 15 per cent, wherever the money was earned. This is to limit their options to declare profits in lower-tax countries to cut their tax bills.

So why is Ireland objecting?

Ireland has signalled that it is okay with the first part of the deal – the change in where multinationals pay tax. Tentative estimates are that this would cost the Irish exchequer more than €2 billion a year. However, Ireland is objecting to the global minimum tax part of the deal, or at least signalling that it requires more clarity before signing up. One problem is that it is not yet clear what the rate might be, with the agreement referring to “at least” 15 per cent.

You said one problem?

Yes. There is another complication. The Biden administration has proposed a higher 21 per cent minimum tax rate on the international earnings of US companies. This proposed rate may get negotiated down in Congress, which will also have a say on the OECD deal. So as well as the OECD talks, we also have this parallel process in the US, of vital interest to Ireland as it will affect the big US companies located here. No doubt US treasury secretary Janet Yellen will want whatever is agreed at the OECD and in Congress to be similar, but we don’t know where this will land yet. Hence, Paschal Donohoe will look for more clarity before deciding whether to abandon the 12.5 per cent rate.

So it’s complicated?

It’s tax. What do you expect ?

Will Ireland sign up eventually?

If there is a deal, and the new US tax regime is somewhere in line with this, then probably, yes. Staying out in these circumstances would seem to have little advantage. It would cost Ireland revenue which could be collected here from increasing the rate to, say, 15 per cent. There are also huge reputational issues for Ireland, now regularly referred to internationally as a tax haven for big business. There is a lot at stake for Ireland, but whatever way this works out it looks likely to cost the Exchequer money and to mean tax will be a much less potent weapon to attract investment here in future.

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