Economy

Global minimum corporate tax rate inches closer

Donohoe says after any deal smaller countries should still be able to use tax as a ‘legitimate lever’ to attract FDI

Paschal Donohoe: he has repeated Ireland’s commitment to an OECD deal. Photograph: EPA/Antonio Cotrim

Sat May 22 2021 - 06:45

The chances of an agreement at OECD talks on a global minimum tax rate have increased significantly after the US said it would agree to a rate as low as 15 per cent, though still indicating it would prefer a higher one.

The US had previously suggested it would push for an agreement at 21 per cent, the same rate as proposed by the Biden administration as a global minimum rate for the international earnings of US companies. In turn it remains to be seen if the 21 per cent rate is passed by the US Congress, with suggestions that agreement here might also be at a lower rate.

The new offer has been greeted positively by some big EU countries, notably France and Germany. With concerns by smaller countries such as the Republic about the whole idea of a global minimum, the latest move by the US is a clear sign that it wants to compromise and reach a consensus – and soon.

Speaking on Friday to the American Chamber Ireland, which represents US companies here, Minister for Finance Paschal Donohoe repeated Ireland's commitment to an OECD deal, but argued that smaller countries should still be able to use tax as a "legitimate lever" to attract FDI.

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The US move will lead to new momentum in the talks, which are also trying to agree how a digital sales tax would operate, obliging the largest multinationals to pay some tax in markets where they sell, reducing the tax base here.

If there is agreement on a 15 per cent minimum rate as well then Ireland will face the question of whether to increase the 12.5 per cent rate to this level, which would yield some additional compensating revenue. So far Donohoe is saying Ireland remains committed to the 12.5 per cent rate.

The talks have still to play out, and one question is what support Donohoe can rely upon amongst other smaller EU states if he decides to hold out against the 15 per cent proposal.

Nonetheless if the US, UK and the big EU countries all back the 15 per cent plan, it will have a strong wind behind it. Donohoe may yet face the big decision on whether to move Ireland’s long-standing 12.5 per cent rate in the wake of a global deal.

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