Ireland's highly competitive 12.5% corporate tax rate is one of the Republic's major attractions for businesses, so there have been some raised eyebrows at recent talk of a global minimum corporate tax rate, put forward by the United States.In April 2021, new US Treasury Secretary, Janet Yellen, called for the introduction of a global minimum corporate tax rate, to stop what she called a "race to the bottom".
The Biden administration expects to increase the US minimum tax rate and the general US corporate income tax rate. However, for such efforts to be successful, there need to be smaller gaps between US rates and those imposed elsewhere.
A statement from the Treasury Department after OECD talks in May indicated that the issue was a key plank of international talks on tax matters, with opinion seemingly coalescing around a 15% minimum rate.
There appears to be supported within the EU for the US proposals, with a European Parliament vote held at the end of April supporting a resolution on the principle of a minimum effective CIT rate.
The response by the Irish authorities has been cautious, with Finance Minister Paschal Donohoe stressing Ireland's commitment to international tax reform, but expressing concerns about proposals for a global minimum tax rate.
Donohoe explained that Ireland will "continue to engage constructively" in international discussions, but defended Ireland's 12.5% corporate tax rate, arguing that it is fair and "within the ambit of healthy tax contribution". He expressed reservations about a global minimum corporate tax rate, observing that countries would need to agree on political principles underlying the concept.
He went on to emphasise that "small countries, and Ireland is one of them, need to be able to use tax policy as a legitimate lever to compensate for advantages… enjoyed by larger countries."
Donohoe repeated these concerns at a speech before the American Chamber of Commerce Ireland this month, suggesting that while the Irish authorities feel that an agreement on international tax reform can be reached this year:
"We need to ensure that tax systems not only continue to support research and development but also provide the certainty and stability, for critical investment decisions to be made into the future."
This is not the first time that Ireland has faced an attack on its corporate tax system, but despite this Ireland has always managed to offer businesses a secure and supportive environment in which to grow and prosper.
In addition, while the attractive corporate tax rate is one of the Republic's key attractions, it has many other advantages. Ireland offers numerous incentive programmes, supportive government bodies at local and national levels, a well-developed technological infrastructure, and a highly-skilled workforce, all in a country located at the gateway to Europe. There are also additional corporate tax incentives, such as the attractive Knowledge Development Box (KDB), and various investment tax reliefs for entrepreneurs and start-ups.
While the US global minimum corporate tax proposals raise questions for Ireland, the Republic has stood its ground successfully in the past when its corporate tax principles have been under threat, and Ireland has come out of such discussions with both its reputation and its tax regime intact.
The Irish Government's traditional strategy of constructive engagement seasoned with healthy scepticism seems to be a positive response, and Ireland will retain numerous advantages for business long into the future.
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