Ireland has changed position on 12.5% tax rate – French finance minister

The Irish Government has changed its position on the State's flagship 12.5 per cent corporation tax rate ahead of a landmark OECD meeting, and a compromise can be reached on a rate of 15 per cent, France's economy minister Bruno Le Maire has said.

In remarks to journalists, Mr Le Maire said there had been discussions with Minister for Finance Paschal Donohoe among other key stakeholders, and that the minimum taxation rate was no longer a significant sticking point as negotiations intensify towards a Friday meeting on the issue.

Indications are that a key change in wording on the future minimum rate may have cleared the way for Ireland to support the deal. Sources say that previous wording of "at least 15 per cent" as a target for the global minimum rate is no longer in the text. Ireland had feared this would have left the way open for the European Commission and other member to seek a higher rate when a directive was put in place to implement the new deal in Europe.

“I welcome the evolution of the Irish position, in particular on Pillar 2,” Mr Le Maire told journalists, referring to the part of the draft OECD agreement that sets out a minimum 15 per cent corporation tax rate.

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“A compromise can be reached on a rate of 15 per cent,” he added. “It is not the rate that poses the most difficulties today. We see that Ireland is in the process of evolving on this subject, and that a compromise can emerge around 15 per cent as the real effective rate.”

“I repeat, contrary to popular belief, this is no longer the most important sticking point.”

Obstacles remain

Nevertheless, significant obstacles still remain to reaching a global deal on the issue, that represent “real political difficulties” that “should not be underestimated”, Mr Le Maire said.

One of Ireland’s concerns had been over language in the deal referring to a rate of “at least” 15 per cent, which the Government feared could open the door to that rate being raised in future.

Sources have said that the previous wording of “ at least 15 per cent” for the global minimum rate no longer appears in the text of the proposed OECD deal.

However, the final exact wording is not yet clear. Indications are growing that the Irish Government will agree to sign up to the proposed deal at a meeting on Thursday.

The wording "is one of the issues under discussion", the European Commissioner for the economy, Paolo Gentiloni, told journalists. A compromise could lie in replacing this phrase with language that firms up that 15 per cent is an absolute minimum effective rate.

Sources yesterday said that the “at least” wording had been removed from the draft text, which now pointed more directly to a minimum rate of 15 per cent. This would be likely to clear the way for the Irish Government to support the OECD deal at a meeting on Thursday, agreeing to abandon the 12.5 per cent rate. Any change would be likely to happen in 2023.

However, a remaining point of disagreement is over the size of the chunk of profits that would be reallocated under the deal, with France, Germany and some developing countries calling for a larger percentage while jurisdictions in which digital giants are currently based have called for a lower level.

The range under discussion is between 20 and 30 per cent, and France has proposed a compromise of 25 per cent, with Turkey said to be a particular holdout.

Carve-outs

Intense discussions continue on how the new rules would affect "carve-outs", or partial exemptions – which are important for countries like Poland and Hungary in attracting foreign investment through the establishment of local subsidiaries – and the timeframe over which any change should be implemented.

China also has questions about how a deal would affect its companies that have large turnover but no subsidiaries abroad.

French foreign minister Jean-Yves Le Drian said it was "now or never" to reach a deal, and warned that momentum would dissipate unless an agreement is sealed among the 140 members of the OECD on Friday and at a meeting of the G20 in Rome later this month.

“It is indeed a tax revolution which is at stake, which can put an end to three decades of tax optimisation,” Mr Le Drian said.

“We believe that a compromise is possible. We believe that a compromise is essential to build a fairer and more efficient tax system in the 21st century. We are going to throw all our strength into this battle.”