The Government has agreed that Ireland will sign up to a global deal on corporate tax reform that will set a minimum rate of 15 per cent for large companies.
Under the deal the long-standing 12.5 per cent rate that has been a cornerstone of efforts to bring jobs to Ireland will no longer be available as part of bids to attract investment from larger multinationals.
Mr Donohoe said he expects that the OECD deal and the new minimum global tax rate will be implemented in 2023.
He said Ireland will be able to retain the 12.5 per cent rate in the interim.
Ireland had been among a handful of countries holding out on signing up to the OECD deal and objected to wording suggesting the new global rate would be “at least” 15 per cent.
The Cabinet has agreed, however, that Ireland will now take part after securing changes to the deal around the use of the term “at least”.
Ireland will now join some 140 countries agreeing to set a global minimum corporate tax rate.
Minister for Finance Paschal Donohoe said that the focus in recent weeks has been to “secure necessary changes” to provide “certainty and stability” and protect Ireland’s strategic interests.
He said the Government has approved his recommendation to join the “international consensus”.
Mr Donohoe said it is the “right decision”, that it is “sensible and pragmatic” and has been “made in the interests of our country”.
Mr Donohoe outlined how Ireland was not prepared to sign up to the original version of the deal many countries agreed in July.
He said that he has been engaging with the OECD since to arrive at a “fairer agreement” that can bring stability.
Mr Donohoe said “importantly we have secured the removal of “at least” in the text as we have sought.”
He said the 15 per cent rate will only apply to companies with turnover of more than €750 million.
The vast majority of companies will not be impacted by the proposed increase in the 12.5 per cent corporate tax rate, Taoiseach Micheál Martin had said earlier in relation to this point.
Speaking in Dublin ahead of a Cabinet meeting, he confirmed the Government’s intention was still to only apply the new 15 per cent rate to companies with turnovers of more than €750 million, in line with OECD proposals on the matter.
State Aid rules
While further negotiations may be needed on the details on how this will operate under EU State Aid rules, Mr Donohoe has been in touch with European competition commissioner Margrethe Vestager in recent days, including at a face-to-face meeting in Brussels on Monday. Securing the lower rate for domestic companies would mean they would not face an increasing tax bill moving out of the pandemic.
Tánaiste Leo Varadkar, meanwhile, said the increase in tax rate would reduce the State’s revenue by about €2 billion a year based on “existing projections”. However, this was “only an estimate and nobody can know that for sure”. The assumptions surrounding company behaviour “may or may not be correct, and that may well be updated”.
But he told Labour finance spokesman Ged Nash that “if we agree to a new global minimum rate there is the advantage of no country being able to undercut us.
“And some countries have actually undercut us in recent years. And that’s something that we would avoid if we were to sign up to the global minimum wage.”
He said they were concerned “to make sure that whatever rate is agreed is certain and won’t ratchet up over time. And we want to make sure that for smaller and mid-sized companies that we can continue to charge the lower rate.
Mr Varadkar added that “we want to make sure that our R&D [research and development] tax credit is protected. We also want to make sure that if countries sign up to this they actually implement it”.
But he said “our 12.5 per cent corporate profit tax has been a huge success. It’s a really important part of our industrial policy” that had strong cross-party support, employed over a quarter of a million people and “we want to keep those jobs”.