G7 agreement on minimum tax threatens 12.5pc rate

Meeting of rich world leaders in Cornwall appears set for a deal

US President Joe Biden is leading the charge on a company tax deal. Ken Cedeno/Reuters

US President Joe Biden is leading the charge on a company tax deal. Ken Cedeno/Reuters

Paschal Donohoe

US President Joe Biden is leading the charge on a company tax deal. Ken Cedeno/Reuters

Jon Ihle

June 04 2021 02:30 AM

Just weeks after Joe Biden was elected US president last November, Finance Minister Paschal Donohoe predicted that a Democratic administration in Washington would create challenges for Ireland on corporation tax.

Now, a little more than four months after Mr Biden entered the White House, that prediction is coming true.

Today the leaders of the G7 group of nations meeting in Cornwall are expected to endorse Washington’s proposal for an ambitious global corporate minimum tax that will threaten Ireland’s 12.5pc rate.

An agreement, if it is reached, is expected to accelerate the OECD tax reform agenda, which seeks to put a floor on tax rates and discourage big digital companies such as Google, Facebook and Amazon from booking profits in low-tax countries like Ireland instead of where their customers are.

Mr Donohoe is participating in the talks as president of the Eurogroup, so won’t be representing exclusively Irish interests in the negotiations.

He is, however, having bilateral meetings with some of the key figures in the discussion, including US treasury secretary Janet Yellen, whose officials confirmed this week that the Americans are looking for a 15pc minimum tax for the world’s biggest companies.

With the recent push from Mr Biden, a deal could be reached as soon as the October G20 and implemented over the coming years.

Corporation tax has become increasingly important to Irish national finances in recent years as booming receipts from a small group of very rich companies have flattered Revenue’s tax take.

As of 2020, €1 out of €5 collected by the tax authority – a total of €11.8bn - came from corporation tax, mostly from the same multinationals in the OECD’s crosshairs.

With the arrival of the Covid-19 pandemic, that windfall helped fund a significant portion State emergency measures to fight the virus and support the economy through the crisis.

The Irish Fiscal Advisory Council, the State budget watchdog, recently warned that the narrowness of the tax base is a risk for the Government’s long-term spending plans.

Mr Donohoe is not blind to the issue. In January he said the potential tax loss for Ireland from the OECD process was €2bn, although that was when Biden favoured a 21pc minimum.

Nonetheless, Ireland has maintained a cooperative stance towards the OECD reform process, with officials preferring stability, certainty and cooperation over unilateral actions and unpredictability.

A number of countries have imposed unilateral digital services taxes targeting big firms, drawing threats of retaliatory tariffs from the United States.

A potential end to Ireland’s 12.5pc rate – a key marketing plank for foreign direct investment – would be a blow. Research published by the ESRI in November found that Ireland’s relatively low tax on corporate earnings was a major factor in its high GDP growth compared to European peers over the last 25 years.

However, changing EU tax policy will likely requireunanimous backing.