Cliff Taylor: Is the OECD’s global tax deal slowly unravelling?

Is the OECD’s global tax deal, reached after five years of tortuous negotiation, slowly unravelling? It is too early to conclude that it is but the challenges of getting the deal tied down and implemented on both sides of the Atlantic are increasingly clear.

On Tuesday, EU finance ministers again failed to agree to push ahead with a plan to implement the new 15 per cent tax rate across the EU. Poland vetoed a deal, arguing that it had not yet got enough assurances in relation to the two parts of the OECD deal being implemented together.

Much of this goes back to the US, where President Joe Biden's administration is having severe difficulties getting tax plans through Congress, thus creating uncertainty.

In Europe, Sweden ad Estonia dropped their early opposition to the plan, so Poland now looks isolated. The French EU presidency, frustrated at the lack of progress, says the topic will again be on the agenda for next month’s EU finance ministers meeting. It could be that Poland is looking for concessions elsewhere before signing up.

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Rate

Having stood against changing the 12.5 per cent corporate tax rate for so long, Ireland is now fully signed up to the 15 per cent rate, which it hopes will mean the question is dealt with once and for all across Europe. So finance minister Paschal Donohoe will hope that Poles can be brought on board, even if implementation of the new rate – assuming it is agreed – may now happen at the end of 2023, rather than the start of that year as had been the target.

Beyond that, however, the OECD deal faces other threats. An outline for the technical implementation of the other part of the agreement – which involves a change in where big digital companies pay tax – has still to be agreed. This is part of Poland’s objections.

This part of the deal would cost Ireland revenue but if there is no global package, many EU countries will probably go ahead and introduce their own digital taxes anyway, potentially sparking tensions with the US. And Ireland could lose revenue anyway with big players in the sector paying some tax elsewhere that would otherwise have come to Ireland .

The backdrop to all this is uncertainty about what will happen in the US. The administration failed to progress its Build Back Better programme – which included the legislation which would have enacted key parts of the OECD plan – through Congress late last year.

Elections

Now a budget plan for 2023 proposes a minimum tax rate of 20 per cent on the overseas earnings of US companies – above the 15 per cent minimum rate. This looks unlikely to be enacted – given the upcoming Congressional elections in November.

What, if anything, will be agreed remains uncertain, as does congressional sign-up to the other part of the OECD strategy, the digital sales tax plan. As the home to the international headquarters of many big US companies, this is of vital interest to Ireland.

To give the OECD implementation process momentum, early progress in the US was required. Now this hasn’t happened, the process is in doubt. The EU may yet agree to legislate for the 15 per cent rate, if Poland signs up. Beyond that, it all depends what happens in the US.