Donohoe defends corporate tax policy against US rate push

Ireland will have to plan for consequences of global minimum rate, minister warns

Debate: Paschal Donohoe said larger economies may have more sway. Photo: Steve Humphreys

Sarah Collins

April 06 2021 06:57 PM

The Government will need to factor in the budgetary impact of a US and UK-led increase in global corporate taxes, Finance Minister Pachal Donohoe has said.

“They’re focused on increasing their corporate tax rates, and they’re also now looking to make the case, as the biggest economies in the world, for a global minimum effective tax rate, and that is going to have consequences for Ireland and we will need to plan for those consequences,” Mr Donohoe told reporters on Tuesday.

He was responding to a speech by US treasury secretary Janet Yellen, who said this week that she was in favour of “a global minimum corporate tax rate that can stop the race to the bottom”.

The UK has also announced plans to increase its corporate tax rate from 19pc to 25pc.

Mr Donohoe said he had “reservations” about US plans for a global minimum effective tax rate, and defended Ireland’s low corporate tax rate of 12.5pc.

“Ireland’s corporate tax rate has been unchanged at 12.5pc, so if the case is being made about a race to the bottom, our rate has not changed during that period.”

He said Ireland would need to fight for the position of smaller economies in global tax talks led by the Organisation for Economic Cooperation and Development (OECD), which is due to report back this summer.

“It is the case that if very, very large economies do decide they want to see particular changes in global tax policy, they can have a very big effect at that debate,” he said.

He added that the OECD talks should “transfer into” EU talks and “be the catalyst for renewed debate in the European Union on corporate tax policy”.

The EU is mulling its own digital levy and the revival of an old multinational tax known as the common consolidated corporate tax base.

Mr Donohoe’s comments come on the foot of the latest Exchequer tax returns, which show tax revenues have remained resilient despite the pandemic.

Overall tax revenues to the end of March were up 1pc (or €130m) on the same period last year, with income tax up a larger 4pc, or €226m.

Vat receipts were also up by an even larger 8.4pc (€350m), which reflects the severity of last year’s spring lockdown, the Department of Finance said.

However, spending was also up by over 14pc, or €2.5bn, on the same period in 2020, leading to an Exchequer deficit of just under €4.2bn up to the end of March.

On a 12-month rolling basis, the Exchequer recorded a deficit of just under €14bn.

That compares to a deficit of €2.5bn at the end of March last year.

The increase is largely driven by an extra €2.7bn spent by the Department of Employment Affairs and Social Protection.

“Our tax performance for the first quarter of this year is a sign of cautious optimism,” Mr Donohoe said. “And it does also show that we made the right decisions about our personal tax code in the pre-pandemic era.”

The Department of Finance will publish updated tax, deficit and spending projections next week when it hands over an updated ‘stability programme’ to the EU.