The Cabinet is due to consider proposals to change the corporate tax regime at its meeting today, the latest stage in a long process. Having held out for some time against agreement on this issue, Ireland signed up in 2021 to implement a minimum 15 per cent corporation tax rate as part of a wider OECD agreement. In the interim, it has become clear that implementing the OECD deal would be a long and complicated process, which is by no means yet complete.
Ireland made the right decision to sign up to the OECD deal. It is designed to reduce aggressive tax avoidance by multinationals – given the international consensus, Ireland had limited options, but did secure a commitment that the minimum rate would be 15 per cent and not “at least 15 per cent”, which might have risked political pressure for further increases.
The implementation of the agreement has, however, proved complex, not least because of political difficulties facing the Biden administration in the US. The lack of momentum in Washington in passing legislation to bring the US in line with the OECD terms has delayed progress elsewhere. It could yet imperil important parts of the deal.
In Europe, a hard-fought agreement means Ireland must legislate this year for a minimum effective tax rate of 15 per cent on firms with a turnover in excess of €750 million. This is due to be implemented in 2024. Minister for Finance Michael McGrath will bring proposals to Cabinet today on how to do this, via the introduction of a new top-up tax for the companies involved.
This seems a reasonable way to proceed, given that Ireland’s existing tax rate is 12.5 per cent and that the new top-up rules could be put in place without upending the existing regime. However, this does not mean it is straightforward. Administratively it is complex. And with US policy in flux, there is an unwelcome lack of certainty for big US firms with EU bases, many of them in Ireland. This is an area to watch in the months ahead.
So is the progress, or lack of it, on the other part of the OECD agreement, which would cost Ireland by reducing the proportion of profit which big firms declare for tax in Ireland. Negotiations here face significant uncertainty and, again, the US role is central. Tensions between the EU and the Biden administration could surface here, too, depending on how this plays out.
It is unfortunate that despite the global tax deal, implementation has proved to be so difficult. Ireland needs to play its part in creating the new tax regime for multinationals and offering the highest level of certainty for those based here on how this will work. But when policy in the US – the key player – remain unclear, further hurdles may lie ahead.
The OECD deal, subject to such lengthy negotiations, is not yet over the line.