Monday, January 24

Ireland abandons 12.5% ​​tax as global deal rushes to finalize

Ireland is poised to sign a proposed global deal for a minimum corporate tax, an escalation that removes an obstacle to an unprecedented deal that would reshape the landscape for multinationals.

On the eve of a key meeting of 140 countries organized by the Organization for Economic Cooperation and Development, the Irish government said it will join the push for a 15% floor applied to corporate entity profits.

“This agreement is a balance between our fiscal competitiveness and our broader place in the world,” Irish Finance Minister Paschal Donohoe said in a statement Thursday night announcing the commitment. The decision “will ensure that Ireland is part of the solution regarding the future international tax framework.”

The agreed rate is 2.5 percentage points higher than the long-standing level that has been a mainstay of Ireland’s economic model for a generation, underscoring its enormous symbolic significance for a nation whose prosperity is linked to its attractiveness to multinationals that They are looking for an operational base in the European Union. .

Ireland’s change is just one of several expected from the holdouts in a wide-ranging global deal. Several countries are seeking so-called exemptions to partially exempt certain activities from the minimum tax, while others are haggling over a separate part of the talks about where the profits of large companies are collected.

The United States views Ireland’s announcement as huge progress, a Treasury official said, noting that 15% would be a floor and not a ceiling for corporate taxes around the world. The goal is to finalize an agreement before the G-20 leaders’ summit in Rome at the end of the month, the official said.

French Finance Minister Bruno Le Maire says a compromise should be struck this month on the grounds that “it is now or never”. His concern is that without a final agreement at a Group of 20 summit this month, a historic window of opportunity to end years of negotiations will close as the chances of US Congress approval quickly fade thereafter. .

While the financial implications of Ireland’s change may never be realized if the deal is not finalized, the importance of the current 12.5% ​​rate in national consciousness was the reason a country normally aligned with consensus international remained for so long.

‘At least 15%’

The Irish government made a particular exception to the wording of a July draft agreement that called for a minimum rate of “at least 15%”, a proposal it did not accept due to concerns that the final number could end up significantly higher. .

Donohoe repeatedly raised concerns about the “at least” language, which has been removed from the revised draft, and emphasized the need for certainty.

“We have secured the removal of ‘at least’ in the OECD text as we have sought,” said Donohoe. “Some countries wanted higher minimum tax rates and I think our position tempered those ambitions in the context of broader consensus and agreement.

Ireland’s 12.5% ​​rate, which has been consistent since 2003, is well below the average of around 23% across the OECD. That helped persuade international companies like Google and Alphabet Inc.’s Facebook Inc. to use it as a base for their European headquarters.

Ireland’s Ministry of Finance estimates that it will lose up to 2 billion euros ($ 2.3 billion) in corporate taxes as a result of the reforms. Even so, it has argued that its 12.5% ​​rate is only one factor in attracting foreign companies to the country.

© 2021 Bloomberg

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