Ireland signs up to global corporate tax deal

Ireland has finally abandoned its cherished 12.5 per cent corporate tax rate and signed up to a minimum 15 per cent global rate that will cost the country about €2bn in lost revenues.

Paschal Donohoe, finance minister, told the Financial Times big businesses could rest assured no more changes would follow the “very, very significant” shift from what had been a cornerstone of Irish policy for more than two decades.

The new tax rate will affect 1,556 companies in Ireland employing 500,000 people, among them US tech giants such as Apple, Google, Amazon and Facebook. Ireland now joins 140 countries in agreeing to the effective levy of 15 per cent on major multinationals ahead of a meeting of the OECD on Friday.

The deal came after Dublin persuaded the OECD to ditch a commitment to a global rate of “at least 15 per cent”.

For smaller, domestic companies with a turnover of less than €750m, Donohoe secured approval from other nations to keep the 12.5 per cent rate — a concession he admitted he had “many” times been unsure he could clinch.

“I believe that change will be right for Ireland and I believe it is also right for Ireland to be playing a positive role in implementing what I believe will be an important agreement,” he said in an interview, adding the deal provided “certainty and stability”.

Asked if the new rate would remain forever, he said: “I can’t see in my lifetime this kind of circumstances developing again . . . 15 will mean 15.”

The meeting in Paris on Friday was expected to agree the framework deal but many details would not be hammered out until early next year, he said — not least how much tax companies will pay in the countries where they operate but are not necessarily located, the so-called Pillar One.

EU members Estonia and Hungary are among lingering holdouts. The EU needs unanimous support from its 27 member states for the agreement.

US President Joe Biden and Janet Yellen, Treasury secretary, are on board but face the challenge of getting the deal through the US Congress since Biden has only a tiny majority in the Senate.

“We’re all depending on each other to be able to implement this collectively and comprehensively,” Donohoe said.

But he added: “I have enough confidence now that this is going to happen globally for me to believe that it’s appropriate that Ireland go into it now.”

High-tech companies have accounted for the bulk of Ireland’s €5bn to €7bn a year foreign direct investment over the past five years.

Karen Frawley, president of the Irish Tax Institute, said Ireland “didn’t want to be in a position where its reputation was very damaged — not signing up would have made us seem to be almost like a tax haven”.

Despite factoring the prospect of a 15 per cent rate into his budget sums since 2019, Donohoe admitted that “at may points I have thought that it is very possible that the entire process itself wouldn’t conclude or Ireland would not be able to get assurances for the changes we needed”.

Dublin worked on the basis that both scenarios — a deal, or no deal — could translate into a loss of revenue. Nevertheless, “it has been evident to me that this moment would be coming”, Donohoe said.

An Irish Times/Ipsos MRBI poll found 59 per cent of respondents opposed increasing the corporate tax rate but Mark Redmond, chief executive of the American Chamber of Commerce Ireland, “warmly welcomed” the announcement.

“The revised agreement ensures essential predictability, stability and certainty for multinational employers,” he said. US FDI in Ireland accounts for about a fifth of private sector jobs.

The new global tax rate is expected to take effect from 2023 and the government estimates it will cost Ireland up to €2bn in coming years.

Donohoe said the estimate of the loss was based on companies paying a smaller share of their overall taxes in Ireland, offset by a higher rate.

In the absence of further detail at this stage “we believe there will be a net overall loss of €2bn in the medium term,” he later told a news conference.

Donohoe added it was important to be inside the deal because otherwise other countries would have collected the difference between the 12.5 per cent and 15 per cent rates.

Some also suggested the move could be positive, not negative, for Irish government coffers.

“Under the proposals, these large corporates would have been paying this additional tax anyway, irrespective of whether Ireland signed up to the deal, as the tax would be collected by other countries. At 15 per cent, Ireland still remains a very attractive location for foreign direct investment,” said Tom Woods, head of tax at KPMG. “The changes should also yield additional gains to the exchequer,” he said in a statement.

Feargal O’Rourke, managing partner at PwC, said the deal could in fact end up being positive for Ireland. The country stands to lose about €2.5bn under Pillar One. “If we increase our rate to 15 per cent on those big global companies affected by the OECD deal, we could gain about €2bn,” he said.