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Ireland Committed To Retaining Attractive Corporate Tax Rate

07 Jul | By Smart MBS
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Ireland Committed To Retaining Attractive Corporate Tax Rate

Last month we looked at the Irish Government’s initial response to the global proposal for a corporate minimum tax rate, which appears to gradually be gaining favour internationally.

With Ireland a past master at defending its 12.5 percent corporate tax rate, the Government initially appeared to strike a cooperative but firm tone in its response to the various international discussions taking place on the topic, being driven by the US in large part of late.

Speaking at an international tax seminar earlier this year, Irish Finance Minister Paschal Donohoe said smaller countries such as Ireland should “…be able to use tax policy as a legitimate lever to compensate for advantages of scale, location, resources, industrial heritage and the real, material, and persistent advantage enjoyed by larger countries.” He, nevertheless, stressed that the Republic is committed to engaging constructively in the international tax reform discussions.

Since our last blog looking at this topic, finance ministers from the G7 countries met to discuss the international tax reform proposals, ahead of a wider meeting of the G20 countries, which is set to take place in Venice on July 9-10.

Following the G7 summit, the ministers formally expressed their support for the US's 15 percent minimum tax proposal, agreeing on "the principles of an ambitious two-pillar global solution to tackle the tax challenges arising from an increasingly globalised and digital global economy."

The communique issued after the meeting further stated that: "[The G7] commit[s] to reaching an equitable solution on the allocation of taxing rights, with market countries awarded taxing rights on at least 20 percent of profit exceeding a 10 percent margin for the largest and most profitable multinational enterprises."

Unsurprisingly, in light of this, it appears the Irish authorities have come to the conclusion that a tougher response may be needed to protect the country’s reputation as a business-friendly, supportive, and fiscally attractive location.

Recently, Donohoe fired several shots across the bow of the OECD, including in a recent Sky News interview, where he expressed "really significant reservations" over the US proposals.

Commenting on the proposal to set the minimum rate at 15 percent, the Irish Finance Minister told Sky News that setting the effective rate at that level would mean that “only certain countries, and certain size economies, can benefit from that rate." He said there should still be a role for lower rates. That said, he said Ireland's corporate tax regime is "only part of the competitive offering for an economy like Ireland's."

Speaking recently to CNBC, Donohoe reiterated that the Government intends to engage “very intensely” with the OECD, the G20 countries, and other bodies discussing this issue. He expressed the hope that there would be a degree of give-and-take between larger and smaller economies.

“We still have some time to go before a final agreement is reached, and so it is difficult for me to say what that compromise could yet look like. But I do believe it is in the interest of everybody to find a compromise,” he reportedly said.

The international reform proposals are likely to remain a key area of focus for the Irish Government over the next month, with the deadline of mid-2021 for an international consensus on reform fast approaching.

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Topics: Tax

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