Opting out of global tax deal would have posed ‘real risks’ – Donohoe

There would have been "very real risks" for the Republic if it had stayed outside the global deal on tax, Minister for Finance Paschal Donohoe told an Oireachtas committee on Wednesday.

The new minimum rate of 15 per cent for big companies represents only a “moderate” rise and will still allow for tax competition between countries, albeit with “guardrails”, he said.

After initially staying out of the agreement, the State last month signed up to the Organisation for Economic Co-operation and Development-brokered (OECD) deal on corporate tax, which will ensure big companies pay a minimum tax rate of 15 per cent, a move than effectively ends the 12.5 per cent rate prized by successive Irish governments.

In an address to the Oireachtas finance committee, Mr Donohoe said the Department of Finance and the Revenue's estimate that the deal will cost the State €2 billion would be kept under review as technical discussions proceed.

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Sinn Féin finance spokesman Pearse Doherty responded that as this original estimate of tax receipts foregone related to the impact of the deal’s reallocation of taxing rights away from the State and did not consider the effect of a higher tax rate – which he said was “obviously going to boost the coffers” here – the estimated cost would likely drop.

“I do appreciate that there is some detail to be worked out on this – quite a bit of detail to be worked out on this – but surely that €2 billion figure is going to come down, and could come down, could it not, quite substantially?” asked Mr Doherty.

The Minister replied that Mr Doherty’s logic was “correct”, but that €2 billion remained “the best guide” the Government could give and would likely be able to give until the second quarter of 2022.

“I’m not going to revise that until I’m clearer about where we are in the OECD process,” he said.

In his opening remarks, the Minister stressed the importance of signing up to the deal.

"As a small open economy within the EU, we have strong ties to the US and many of the other G20 countries. This makes it essential that we stay in line with key international accords," Mr Donohoe said.

If Ireland was not in the agreement "we would lose influence in respect to the critical and ongoing technical discussions", he said.

Accountability clash

Mr Donohoe and Mr Doherty had a robust exchange later in the Oireachtas hearing as the subject turned to pre-legislative scrutiny of the general scheme of the Central Bank (Individual Accountability Framework) Bill 2021.

This legislation will strengthen the regulator’s ability to hold senior executives in banks, insurers and certain investment firms to account for “misbehaviour or mismanagement”. The Central Bank called for such a regime to be introduced in 2017 as part of its submission to a Law Reform Commission consultation paper.

Mr Donohoe said it had been “a priority of mine to get this done”. It had, however, required “a lot of engagement” with the Attorney General and the Central Bank to come up with a framework “for dealing with the appropriate level of sanctions”, he said. The regime is not expected to be in operation until 2023.

“I accept it has taken time to get to this point,” the Minister said.

Mr Doherty said he did not “buy” the explanation of legal difficulties offered by Mr Donohoe.

“I believe the reason is you didn’t give this priority. This wasn’t top of your agenda – it’s not top of your agenda to hold these individuals to account. That’s the problem.”

The Minister then suggested the Sinn Féin TD’s remarks were influenced by a desire to “generate social content media for your troll farms in Macedonia or wherever they are”. He objected to what he regarded as Mr Doherty trying to imply “that my motives here are about trying to protect some elite” and said he was “wrong” to imply this was the reason for the delay.

In turn, Mr Doherty said the troll farms comment was “beneath” the Minister and criticised him for the way he had characterised his motivations in seeking to hold individuals in the financial sector to account.

“It has taken you 4½ years to bring this legislation. Now if that’s you giving priority to something, Minister, I would hate to see something that you haven’t prioritised, because that is ridiculous. It is scandalous.”

Mr Doherty also accused Mr Donohoe of “diversionary tactics”, to which Mr Donohoe replied: “You’re not too bad at diversionary tactics yourself.”

Strategic interests

On the OECD tax deal, Mr Donohoe said his intervention had been“instrumental in ensuring that the rate is moderate, and will continue to permit tax competition within guardrails, recognising that other countries advocated for higher rates”.

The State had held off from signing the deal until the wording “at least” from before 15 per cent was removed from the final agreement, amid fears it could rise further.

“ My priority in recent months was to secure the necessary changes in the October agreement and to ensure that our strategic interests would be protected,” he said.

Mr Donohoe said the State had clearly benefited from the investment and “good jobs” that have accompanied the decision of many multinationals to make Ireland their home.

“It is vital that we adapt and evolve in line with new international rules so that we can continue to be a world-class destination for inward investment,” he said. He added that the upsides of being part of the agreement “far outweigh the downsides of staying out”.