NTMA warns investors of negative impact from global taxreform

BEPs 2 could knock €1.8bn off Irish tax take, making it harder to fund huge Covid response programmes

Finance Minister Paschal Donohoe, left, and NTMA Chief Executive Conor O'Kelly.

Jon Ihle

April 10 2021 02:30 AM

The National Treasury Management Agency (NTMA) has outlined the potential loss to Ireland from global tax changes in a presentation to bond investors.

The agency, which raises debt funding internationally to finance Government spending, is telling investors in virtual meetings this month that proposed international corporate tax reforms could cost the exchequer billions and "erode this country's comparative advantage".

In a presentation prepared last month as part of ongoing engagement with bondholders, the NTMA warned that the OECD's BEPS 2.0 process could re-allocate taxing rights from low-tax countries like Ireland to larger nations.

"Such a proposal would probably reduce Ireland’s corporation tax base. Some estimates place the hit at 5pc-15pc per annum," the presentation said.

Based on 2020's €11.8bn corporate tax take, that impact alone could be as much as €1.8bn.

It also warned that a related proposal to impose a minimum effective tax on corporations globally would be a threat if the agreed rate was higher than Ireland's 12.5pc corporation tax. The impact for this was unquantified.

The presentation was created before the Biden administration proposed to institute a global minimum tax on multinational companies of 21pc.

The measures are aimed at repatriating what the United States says are taxes lost to low-tax jurisdictions like Ireland where many American companies book billions in global profits.

Ireland's status as a favoured location for foreign direct investment, especially from the pharmaceutical and technology sectors, has been a significant help for the public finances during the pandemic.

However, the erosion of their contribution to the public finances could make it harder to support recent increases in Government spending.

The only major tax head to increase last year was corporation tax, which rose by €945m or nearly 9pc, mainly on the performance of tech and pharma companies with major operations here.

The US proposals come as the NTMA is preparing for its next major bond auction on May 13.

The agency needs to raise between €16bn and €20bn in 2021 to cover the widening deficit incurred by the extraordinary pandemic spending undertaken by the Government since last March.

The NTMA raised €7bn in the first quarter at a blended interest rate slightly below zero, putting it well on track to meet its target for the year.

The agency is taking advantage of a pause in bond redemptions this year to raise fresh funds without having to refinance older debt as it comes due.

ECB bond buying has also helped the Government extend the maturities of its bond issuance by several years.

This has helped provide the fiscal space to support unprecedented stimulus spending of €37.8bn over two years to mitigate the economic impact of the Covid-19 pandemic.

Both the NTMA and Minister for Finance Paschal Donohoe are pledging to narrow the deficit again after the pandemic ends to retain Ireland's hard won reputation for renewed fiscal discipline following the financial crisis.