Any change in corporate tax rate would only affect ‘very large companies’ – Varadkar

Tánaiste Leo Varadkar has said that for the majority of Ireland-based small, medium and even large companies – those with turnover less than €750 million – the corporate tax rate will remain at 12.5 per cent, even if Ireland signs up to a global agreement on a new higher corporate tax rate.

Ireland is coming under pressure to sign up to an Organisation for Economic Co-operation and Development (OECD) plan for a global corporate tax rate of at least 15 per cent. Ireland is one of only a handful of countries holding out against the plans.

Speaking after a Cabinet meeting on Tuesday, Mr Varadkar raised the possibility that there could be two corporate tax rates in Ireland and said the 12.5 per cent rate would be retained for smaller and mid-size companies.

“The discussions we are having internationally at the moment only relate to very large companies with a turnover of more than €750 million a year,” he said.

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“So any agreement we may or may not sign up to won’t impact the average Irish business, won’t impact even any large Irish business, or mid-caps. The 12.5 per cent rate will stay in place for them.”

If there is any change, it would only apply to those “very large companies”, he said.

As he continued his visit to New York, Taoiseach Micheál Martin was asked about the prospect of two different corporate tax rates being introduced.

He said “certain moves have already been made in respect of this [OECD]process... originally it was at 21 per cent for example. It’s now at least 15 [per cent] which we’re not happy with”.

Mr Martin said: “Negotiations will continue between all of the countries involved so I’m loath and reluctant to get into the specifics until the final process is concluded.

“But remember, our over-riding objective will be... to retain our competitiveness, and also the principle of tax competition, which is important which keeps countries and people on their toes in respect of efficiencies.”

On Monday, Mr Martin told a press conference he would not be making commitments to US companies “one way or the other” that Ireland will be keeping its 12.5 per cent corporate tax rate.

He was asked by reporters on Tuesday if Ireland was waving the white flag on the 12.5 per cent rate.

Mr Martin said he watched the interpretations people had put on his comments and said “the bottom line is this, we’re in an OECD process. And in the middle of our process, you engage in a constructive way.”

He added: “We have not agreed. We’ve not joined the consensus so far.”

Leverage

Speaking in Dublin, the Tánaiste said other countries wanted Ireland to sign up to the agreement. “But that gives us a little bit of leverage, a little bit of negotiating power. So we want to make sure we’re protecting Ireland’s economic interests,” he said.

“Bear in mind many countries will benefit from an agreement on international tax, Ireland as a country will lose revenues, so we have to protect our interests, and that’s what we’re going to do.”

He defended the rate and Ireland’s industrial policy, saying: “It’s a perfect example of where low taxes result in higher revenues, and we don’t want to give that up, but at the same time, we’d prefer to be inside the tent than outside of it.”

Corporate tax had been a key part of Ireland’s “pitch” for international investment, he said.

“What has worked for us is having a low rate of corporation profit tax, and certainty about that, that it doesn’t change when the Government changes, when there’s a boom or bust or recession.

“It is a big part of our pitch when it comes to foreign investment and it has been very successful, and that’s what we want to retain. But on balance we have to make a decision at a certain point as to whether it’s better for us to be within an international agreement or without it and that’s why we can’t make a firm commitment at the moment as to whether we’ll be inside or outside that treaty.”

Mr Varadkar said he “absolutely” agreed with comments made by Taoiseach Micheál Martin, who on Monday said he will not be making commitments to US companies “one way or the other” that Ireland will be keeping its 12.5 per cent corporate tax rate.

Minister for Finance Paschal Donohoe said the proposed OECD deal "contains just far too many uncertainties" for him to recommend to the Government or the Dáil that Ireland should sign up to it.

Speaking in the Dáil, Mr Donohoe said “the phrase at the moment is at least 15 per cent” in the OECD plan for a global corporation tax rate.

The description of a potential rate “as at least a figure does not give me the confidence and certainty that I need to be able to make a recommendation to this Government”.

‘Small marginal increase’

The Labour Party on Tuesday said Ireland could live with a minimum corporation tax of 15 per cent in Ireland for large multinational corporations.

The party's spokesman on finance Ged Nash said the party believed a "small marginal increase" of the minimum effective rate could be tolerated and would not inhibit Ireland's ability to attract foreign direct investment to the State.

Mr Nash, speaking at Leinster House, said the Government had made a mistake in its stance to date and needed to embrace the next phase of negotiations which will set a new minimum floor of global corporate tax.

“We should have sufficient confidence in other competitive advantages,” he said, adding that Ireland should not focus disproportionately on low rates of corporation tax.

He said Ireland’s stance had lost the State allies in Europe.

“Our assessment is we can live with a marginal increase of our minimal corporation rate to 15 per cent,” he said.

He said the State’s tax sovereignty could allow it to distinguish between global multinationals and indigenous companies which could still benefit from lower corporate tax rates.

“We can still reserve the right to set our own corporation tax rate but that would be guided by a new minimal global floor.”

He argued that Ireland had huge competitive advantages already and a change in tax rate would not act as a chilling effect to global companies locating in the State.

The party earlier called for the Government to sign up fully to the international tax reforms, saying the “writing is on the wall” over the future of the country’s corporate tax rate.

The party’s submission to Minister for Finance Paschal Donohoe’s consultation on OECD international tax reforms stops short of explicitly calling for an increase in the rate, but it does say Ireland should commit to “pillar two” of the OECD’s process, which contains a commitment to a global minimum corporate tax rate of “at least” 15 per cent.

“It is the view of the Labour Party that fully committing to pillar two will enhance our international reputation, provide important certainty for companies who wish to invest here and will help to put an end to the damaging global race to the bottom in corporate taxation rates,” the submission states.

Tax system

Sinn Féin’s finance spokesman Pearse Doherty said there is “obviously a need to fundamentally reform the international tax system”. Sinn Féin supports the broad policy objectives set out in the OECD inclusive framework, he said.

“However it is our very clear view that any global minimum corporate tax rate under pillar two can and should accommodate our domestic rate of 12.5 per cent and it would be a serious failure on the part of the Government if they were not to achieve that in the negotiations process,” he said.

“They have clearly been struggling to get support from other states and a lot of that is due to our damaged reputation internationally as a result of successive governments actively facilitating tax avoidance and aggressive tax planning with schemes such as the double Irish and stateless companies.”

Speaking on Tuesday morning, Green Party Minister of State at the Department of Public Expenditure and Reform Ossian Smyth pointed out there is a commitment to the 12.5 per cent rate in the Programme for Government and that it was in his party's manifesto.

“I don’t see any change about to happen imminently. We have an agreed policy on it,” he said.

Green Party finance spokeswoman Neasa Hourigan said global tax reform is now an urgent requirement to reduce income inequality and poverty, and to support communities across the world most impacted by climate change.

“Ireland’s excellent track record on international aid and progressive diplomacy is now significantly undermined by the decision in July to reject a draft agreement on international corporate tax reform from the OECD,” she said.

“This places Ireland as one of only nine countries to fail to engage with this important development.

“Ireland should be at the centre of these negotiations protecting the interests of smaller countries. There can be no climate justice without tax justice.”