Eoin Drea: Our battles with Brussels only beginning

The decision of Ireland to officially join the proposed OECD agreement on corporate tax is both welcome and overdue, but it does not ensure the end of Dublin’s tax harmonisation battles in Brussels.

In the short term, Ireland coming into the minimum taxation tent brings several benefits. It removes the credibility-sapping focus on Ireland’s policies which have come to dominate international coverage of this issue. It will also shift attention to other EU states (namely Poland and Hungary) who are presenting Brussels with much more fundamental challenges over the rule of law and the primacy of EU legislation. Being part of the solution (as opposed to drifting away to principled isolationism) will allow Ireland to more robustly defend its interests as the agreement edges closer to finalisation.

But, it is politically where the biggest advantages may accrue. Ireland’s actions have inadvertently coincided with an increasing urgency in Paris for a global agreement (in advance of the French presidential election in early 2022). The willingness of the OECD (and Paris) to alter language regarding the 15 per cent minimum rate speaks to their desire to reach as wide an agreement as possible before the political momentum inevitably begins to lag.

By entering the OECD tent, Ireland is thus in a stronger position to act as a constructively hesitant voice on tax harmonisation matters within the EU. The importance of this role cannot be underestimated given the integrating impulses of an increasing number of western European member states. Impulses which the ongoing pandemic have re-released with renewed Europhilia.

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Unfortunately, up to now, the minimum tax rate question has overshadowed the much more important issue of how smaller member states – such as Ireland – can remain competitive in an EU where further harmonisation is now a clear objective.

Space to act

In this context, and freed from the baggage of being outside the OECD agreement, Ireland now has the space to act as a key proponent of a more globally competitive EU. An EU that respects the abilities of smaller states to compete for investment within the framework of a globally agreed minimum corporate tax rate.

But for this to occur, Dublin must actively support efforts to ratify the OECD agreement, particularly in the United States.

Dublin must actively support efforts to ratify the OECD agreement, particularly in the United States

The tempting view, often heard in Dublin and Brussels, is that Irish interests would be best served by signing up to the global agreement but then standing idly by as it dies a slow, partisan death on the floor of the US senate.

But such a wish is misguided and will ultimately prove even more detrimental to Ireland’s long-term objectives.

Because if the OECD deal fails to be ratified, it will prompt the EU to act unilaterally and reintroduce their own proposals for corporate tax reform. But those proposals will not be sated by a minimum tax rate of 15 per cent.

Rather, untethered from the requirement for global compromise, the EU’s proposals will include more stringent measures really capable of challenging Ireland’s economic model. A digital tax (already introduced by several individual member states) and moves towards even deeper tax harmonisation will be on that agenda.

The renewed enthusiasm in Brussels for deepening integration should not be underestimated. The pan-EU response to the ongoing pandemic has convinced Brussels the time is ripe for “more Europe”. Politically, their stars might even be aligning.

Joint borrowing

Germany’s consent to the European Recovery Fund has created expectations of more permanent EU structures for joint borrowing, especially in southern Europe. The retirement of chancellor Angela Merkel has created a vacuum which is allowing Emmanuel Macron to emerge as the key voice in driving the European agenda. Shorn of British cover, the remaining free marketeers – the Nordics, the Netherlands, Ireland – do not have the sufficient scale to act as a blocking minority across many issues.

Shorn of British cover, the remaining free marketeers – the Nordics, the Netherlands, Ireland – do not have the sufficient scale to act as a blocking minority

France’s upcoming presidency of the European Council (starting in January 2022) will be about envisioning a deeper, more French Europe, hardly a more competitive one. Even the fragmentation in support for France’s far right presidential candidates bodes well for Macron’s re-election prospects.

For Ireland, the strategic question isn’t about the logic (or not) of signing up to the OECD agreement, it’s about how to utilise this potential global agreement to constrain an EU increasingly anxious for deeper economic integration. This integration has structural implications for the Irish economic model.

Dublin, however, has its work cut out. On economic issues, its flip-flopping in recent years (slipping from the frugal to the Mediterranean camp depending on the political mood) has not gone unnoticed across Europe. Nor has its foot-dragging approach to corporate tax reform.

For Ireland, the OECD’s proposals represent only the first skirmish in Dublin’s forthcoming economic battles in Europe. For an economy built on the dual pillars of attracting foreign investment and EU membership, there will likely be no more bloodless victories.

Eoin Drea is a senior researcher at the Wilfried Martens Centre, the official think tank of the European People’s Party of which Fine Gael is a member