Irish Times view on Ireland’s corporate tax regime: holding out will come at a cost

Government must play its part in move to close off system which has offered too much advantage to big multinationals

European Central Bank president Christine Lagarde  arrives at the Arsenale for the G20 Finance Ministers and Central Bank Governors Meeting in Venice on Friday. Photograph: Andrea Merola/ EPA

European Central Bank president Christine Lagarde arrives at the Arsenale for the G20 Finance Ministers and Central Bank Governors Meeting in Venice on Friday. Photograph: Andrea Merola/ EPA

 

If there is a global consensus on a tax reform programme for multinationals later this year, then Ireland will surely sign up. Indeed it must. By deciding not to join 130 other countries in signalling consent at this stage, Minister for Finance Paschal Donohoe is indicating that he needs more clarity on the part of the plan relating to a minimum corporate tax rate, a key issue for Ireland given the long-standing 12.5 per cent rate.

There are reputational costs in holding out, as just eight countries have not signed the outline agreement, though if Ireland signs up later this year this initial reluctance may soon be forgotten. The pressures on Ireland are all the greater given the slow pace at which some of the more controversial tax incentives – notably the double Irish scheme – were phased out in recent years. These strategic errors have now led to a political cost.

The general political support for the reform programme was underlined again at the G20 summit in Venice this weekend, which called for countries who had not already done so to sign up. It is likely a deal will be done, but not certain. There are gaps on some key details of the plan and tensions between the European Union and the United States. But perhaps the greatest doubt relates to what happens in US domestic politics.

The Biden administration is trying to push through a major spending programme, funded in part by higher taxes on companies. To persuade Congress to accept higher corporate taxes at home, the US is keen to get the international plan agreed. However, the domestic politics are difficult and it is unclear what Congress may agree.

For Ireland, this creates significant uncertainty, given that most of the overseas investment here comes from the US. If the US can’t pass its plan at home, then the future of the OECD process is unclear. If a new OECD rate is agreed – probably of 15 per cent – and the US applies the same rate in its domestic legislation, then there will clearly be no point in Ireland trying to hold out. Nor would this be reasonable, given the necessity to increase the tax take from major multinationals and reduce their ability for aggressive tax planning.

Ireland has already signalled it will agree to the other part of the tax plan – which initial estimates suggest will cost the exchequer upwards of €2 billion a year. This involves changes in where big companies pay tax, with some in future paid in markets where sales are made. But pressure will build on the minimum tax issue.

As the talks progress, Ireland has national interests to safeguard and it is reasonable to look for clarity on what the minimum rate will be. But the Government must remain fully involved and prepared to play its part in the move to close off a system which has offered too much advantage to big multinationals.

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