Ireland’s finance minister has signalled the country will resist attempts to rebalance the global tax system if they affect Dublin’s ability to undercut its rivals.
Under new tax proposals led by the US, Ireland could lose 20% of its tax revenues, according to Paschal Donohoe.
He said he would support a global agreement that allowed “appropriate and acceptable tax competition” between states, as momentum grows for an agreement to prevent Ireland and others from attracting others with dramatically lower effective tax rates.
The global tax system has failed to adapt to the rise of digital services across borders in recent decades, and critics argue that the lack of harmonised rules has triggered a “race to the bottom” on global tax.
Attempts to fix the system and prevent multinational companies from choosing an advantageous tax jurisdiction were previously stymied by the US, home of tech companies such as Apple, Google’s owner Alphabet and Microsoft, which were among the beneficiaries.
Under Joe Biden, however, the White House has made proposals to break the deadlock, including a global minimum corporate tax rate of 21% of profits and allowing countries to charge some tax based on the location of sales.
The changes could prove dramatic for Ireland, a relatively small economy which has taken an increasing role in the global tax system because of its political stability and rules that allow big companies to pay far lower corporation tax rates than in many other big economies.
Speaking at a virtual summit convened in Dublin, Donohoe said the country would seek to retain its current tax rate. Its headline corporate tax rate is 12.5%. The UK’s is 19% and is due to rise to 25% from April 2023. Many large companies end up paying a fraction of the 12.5% rate.
Apple paid an effective rate of less than 1% for many years in Ireland, falling as low as 0.005% in 2014, on revenues that were mainly derived from sales in other countries.
The European commission ruled in 2016 that Apple had to repay €13bn (£11.2bn) in back-taxes to Ireland after deciding that a secret tax deal represented illegal state aid. That decision, however, was struck down by an EU court in July. The commission is appealing against it.
Donohoe said small countries should be allowed to use lower taxes to “compensate for advantages of scale” enjoyed by larger economies. Other small territories such as the UK’s offshore crown dependencies and overseas territories also use low or zero corporation tax rates to attract business.
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Ireland will resist global corporate tax rate finance minister announces