The Irish Times view on the G7’s move on corporate tax: Ireland must consider how it will remain attractive for investment
Ireland will face a decision on whether to increase the 12.5 per cent rate to the new minimum, if one is agreed
US Treasury Secretary Janet Yellen speaks during a press conference after attending the G7 Finance Ministers meeting at Winfield House in Longon. Photograph: Justin Tallis – WPA Pool/Getty Images
The decision of the finance ministers of the G7 countries to back a major package of global corporate tax reform is significant, making agreement at the OECD on this issue look likely, if as yet far from certain. In turn this will pose significant questions for Ireland.
The G7 finance ministers gave unequivocal backing to the two main elements of the OECD agenda. These are, first, the reallocation of taxing rights so tax can be charged in countries in which multinationals sell, but do not have significant operations. And second, the meeting supported the introduction of a minimum effective tax rate of “at least 15 per cent” to apply in each country in which the multinationals operate.
This still has to be agreed by the other countries involved in the OECD process and Minister for Finance Paschal Donohoe has said the interests of small, as well as large, countries need to be taken into account in any deal. Smaller countries have tended to use lower tax rates as an attraction for foreign direct investment. Significant details on the plan to reallocate taxing rights remain to be worked out as well and are probably now the main risk to an overall agreement.
For Ireland the implications, broadly, involve two main considerations. The first is the reallocation of taxing rights in favour of large countries with big markets. The Department of Finance has estimated tentatively this might cost the Irish exchequer more than €2.2 billion per annum, or not far off one fifth of total corporate tax revenue.
The second consideration relates to the proposed global minimum tax rate and the attempt to reduce sharply the ability of countries to attract investment via the use of their corporate tax regimes. Under the plan, as backed by the G7, even if Ireland retained its 12.5 per cent rate, multinationals would be likely to pay a top-up payment in their home country, with other changes also proposed to put pressure on countries to adopt the minimum rate.
Ireland will face a decision on whether to increase the 12.5 per cent rate to the new minimum, if one is agreed. So far Paschal Donohoe has said that he believes any new regime must “accommodate” the 12.5 per cent rate. Other EU countries – and it appears the US – feel otherwise.
Meanwhile, the longer-term strategic issue for Ireland is how to remain attractive for investment – from international and domestic companies – in an era when tax competition is coming to an end. Other issues, such as infrastructure, education and skills come to the fore. News that the national broadband plan is running behind schedule is not welcome in this context. Systemic issues such as the adequate funding of higher education remain problematic and decisions have been continually delayed. These are the kind of vital areas which will count in future in attracting investment to Ireland and keeping it here.