Hard to get away from the fact the US is eating our lunch in tax deal

Donal O'Donovan

US Secretary of the Treasury, Janet Yellen and Finance Minister Paschal Donohoe at a press conference in Government Buildings during her official visit to Ireland. Photo by Julien Behal

US Treasury Secretary Janet Yellen chats to Bono during her visit to Dublin yesterday. Photo: Twitter

US Secretary of the Treasury, Janet Yellen and Finance Minister Paschal Donohoe at a press conference in Government Buildings during her official visit to Ireland. Photo by Julien Behal

US Treasury Secretary Janet Yellen chats to Bono during her visit to Dublin yesterday. Photo: Twitter

US Secretary of the Treasury, Janet Yellen and Finance Minister Paschal Donohoe at a press conference in Government Buildings during her official visit to Ireland. Photo by Julien Behal

November 02 2021 02:30 AM

Diminutive and white-haired, Janet Yellen could not look any less like a school-yard bully. In fairness to her, the US Treasury Secretary was mannerly to a fault as she lined up alongside Paschal Donohoe at a series of events in Dublin on Monday .

There’s no getting away from it though, Janet Yellen was in town after eating Paschal Donohoe’s lunch, or €2bn a year of it anyway. And while she was magnanimous in singing the (non-tax) benefits of doing business in Ireland, there’s real steel there and she wasn’t in any mood to apologise for an OECD tax deal she believes will help American families, even if it’s seen here as hurting Ireland.

That €2bn is the minister’s best estimate of what Ireland will lose under the OECD tax plan powered through a lightning round of high-level talks this year by Ms Yellen and other big nations and which Paschal Donohoe grudgingly signed up to last month. The minister had held out as long as plausible and made the best of a bad lot with a late-won concession removing a line from early versions of the agreement that said a global minimum would be “at least” 15pc. The simpler version implies the rate will stay at 15pc.

On her Dublin visit, Ms Yellen gave some extra comfort on that score, without an explicit guarantee.

“There is broad agreement on that (15pc) and I don’t think that is something that is going to be reconsidered,” she said.

Mr Donohoe looked on with a surprising show of enthusiasm for a tax deal the whole world knows he was railroaded into.

Ms Yellen, defending the agreement, argued the previous tax free-for-all had left everyone worse off.

“We’ve had a so-called race to the bottom in terms of corporate taxation and no country’s won that, we’ve all been forced to compete with each other,” she said.

But it’s not really true that no country won from tax competition. Ireland did.

The OECD’s process is a fundamental challenge to the low tax-led foreign direct
investment policies that, however unpopular abroad, helped catapult Ireland out of poverty. After 50 years it may have been time to change policy tack anyway, but the timing and the change that’s coming are not of Ireland’s choosing.

In sharp contrast, the OECD deal is a win for Ms Yellen and leaders of other big economies. The deal will haul more global taxes ‘home’ and boxes-in small, upstart, economies like Ireland.

Indeed, it’s a rare win for Ms Yellen and the rest of the Biden administration. At home their efforts to tax billionaires and reverse Trump-era
corporate tax cuts are floundering. In that light and as a smart, veteran politician, Ms Yellen must have seen Mr Donohoe’s invitation to visit Ireland as a hard-to-miss opportunity to take a victory lap.

It’s harder to see what was in it for the Irish minister. A Yellen visit means valuable access to the most powerful figure in the world economy but the timing, so soon after the OECD deal, was dire.

Roman generals liked to parade their defeated enemies in triumph but there’s no record of the vanquished actually organising the parade.