Why has the Taoiseach said he can’t guarantee to US companies that the Irish 12.5 per cent rate will stay in place ?
Speaking in the US, Taoiseach Micheál Martin said he couldn't make commitments " one way or the other" to the big multinationals he will be meeting that Ireland will keep its 12.5 per cent.
Finance minister Paschal Donohoe has said he hopes Ireland can sign up to the OECD deal on tax – and if it does, it is clear that the 12.5 per cent rate will be no more. By making this explicit, the Taoiseach has underlined what is at stake and the uncertainties that lie ahead.
Is the Government preparing the way to abandon the 12.5 per cent rate?
Yes. But only if the international agreement being brokered by the OECD comes together in the next few weeks. Donohoe has said that even if there is an OECD agreement, then Ireland could remain outside it.
However if the vast bulk of other countries sign up, then it looks most unlikely that Ireland would stay outside the tent.
Even the body which represents the big US multinationals here. the American Chamber of Commerce Ireland which represents the big US multinationals here has said in a submission to a Department of Finance consultation that it would not be in Ireland's interest to remain outside a global deal.
And most of the other countries have signed up. Haven’t they?
Yes. A total of 139 countries are involved in the OECD talks and 130 signed the draft agreement during the summer, with a couple more coming on board since. In the EU, Hungary and Estonia are the only other countries who have refused to sign. So Ireland is exposed here.
But there is one key uncertainty. US President Joe Biden has pushed the talks forward at the OECD, but it is not clear what he can get through the US Congress.. And the other big parties to the OECD deal may be slow to sign up if they fear that the US cannot deliver itself, or will go off in a different direction in some key areas.
A really difficult scenario for Ireland would be if the OECD members still pushed ahead with a deal, even against the backdrop of uncertainty about what is happening in the US.
What would Ireland look for before signing up?
A key issue is a firm commitment on what the global minimum tax rate would be.
The draft OECD agreement refers to a rate of “ at least 15 per cent.” Ireland would look for certainty – that the rate would be 15 per cent and no more – and that the EU would not try to introduce a higher rate for its members.
There are also other technical issues which all countries are still haggling over and for Ireland it would be important how spending in areas like research was handled.
But a key issue for Ireland would be what regime would apply in the US and the parallel talks at the OECD and in the US Congress may make this complicated.
What would a deal mean for Ireland?
The Department of Finance has estimated that in cash terms Ireland could lose up to €2 billion a year in annual corporate tax revenue, due to a change in the rules about where companies pay tax.
However the bigger issue, and the one which is harder to predict, is the impact on inward investment in the long-term.
A lot would come down to how a couple of dozen big US companies with big operations here react in the years ahead. And there would be pressure on Ireland to up its game in areas like research, innovation and education funding to compensate for the fact that tax will be a much less powerful tool in future to attract investment here.
And what if the OECD deal falls apart?
This would be dangerous, too. Individual countries would move ahead and introduce their own digital taxes, potentially fuelling tensions between the EU and US.
Ireland could be caught in the middle. There would be no certainty about future tax rules and this could affect investment. So there is no easy way out.
