Hard to see Ireland staying out of OECD corporate tax deal if US signs up

Minister for Finance Paschal Donohoe has made a significant call in deciding that Ireland would be one of just nine countries not to sign up to an agreement at the OECD on the outlines of a major reform plan for global corporate tax. The Minister said that Ireland "broadly supported" the package, but did not sign up "today", largely due to reservations about the proposal to impose a minimum tax rate of 15 per cent for major companies.

Sooner or later Ireland will have to decide whether to join the deal or not. The OECD appears to be doing everything possible to hold the door open, with its director general Mathias Cormann tweeting on Thursday night that he “appreciated” Ireland’s commitment to stay engaged in the talks.

The major economies represented at the G7 signed up to the tax-reform agreement recently which has two parts. One is the proposal to change where big companies pay tax, to ensure they pay some in big markets where they do business but have no physical presence. This could cost Ireland upwards of €2 billion a year in lost revenue, but Donohoe said Ireland supported this part of the plan.

It is the second aspect of the deal, the proposed minimum global corporate tax rate, where Ireland has problems. The country has long had a political consensus on the 12.5 per cent corporate tax rate and is resisting a change here. The real issue for Donohoe, meanwhile, may be what happens with parallel US tax-reform plans which are still in negotiation with Congress.

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Technical details

Donohoe may also seek concessions in the key technical work ahead, after recent changes were made to get other countries such as China on board. “The devil will be in the technical detail,” according to PwC managing partner Feargal O’Rourke, as well as how the US reform plan unfolds.

These are the key tactical issues, but there are also clear reputational risks in being seen to hold out against an agreement to make big companies pay a fair share of tax. The group of nine includes just two other European Union countries – Estonia and Hungary – and a couple of Caribbean tax havens, among others. Meanwhile 130 countries have signed up, including India and China who have joined the G7 countries to make it look more likely that a deal will now be finalised by the October deadline.

Donohoe has announced a public consultation on the OECD proposals which will attempt to provide some backing for whatever way he finally decides to jump. The OECD and the other countries will be keen to have Ireland on board. But no country can block a deal and it looks more likely that the deal will now go ahead, though Republican opposition in the US Congress is now probably the main obstacle to getting a deal done. Were Ireland to stay out, other countries would charge a top-up on the 12.5 per cent paid here to at least 15 per cent. So the advantage of the 12.5 per cent rate would be neutralised and Ireland would be forgoing tax revenue which could be collected here.

If the deal goes through and the US signs up, it is hard to see Ireland remaining outside the tent. But there is a way to go yet.