Biden’s tax review highlights Ireland’s corporate tax rate

DUBLIN – Ireland’s low corporate tax rate is back in the spotlight when US President Joe Biden tries to renew the global tax landscape.

The country’s 12.5% ​​rate has been a key feature in its ability to attract to its shores dozens of large companies, primarily U.S. technology and pharmaceutical companies, often creating many jobs.

Still, Ireland’s tax system has attracted a lot of anger, especially in Apple’s € 13 billion tax dispute with the European Commission.

Biden’s “Made in America” plan, which proposes a global minimum tax rate, has rekindled the flame, while Treasury Secretary Janet Yellen said the “race to the bottom” on rates of corporation tax must end.

The tax consensus is a debate that has been fading for years, specifically through negotiations at the OECD on a global minimum corporate tax rate and the various efforts of national governments to impose digital taxes.

Alex Cobham, an economist and chief executive of the Tax Justice Network’s advocacy group, told CNBC that while Biden’s proposals have not presented anything that has not been proposed before, this time there is a bigger boost.

“We are very positive about what the Biden administration has done, in part because of both the great narrative change and the detailed policy,” he said.

“There was nothing new there, but we understand that it happened that the administration landed very hard with the media and they said, ‘That’s all, that’s the most important thing.’

Any change in the corporate tax landscape will have an effect on Ireland, which has remained firm at its 12.5% ​​rate for years. Corporate tax revenue amounted to 11.8 billion euros ($ 14.1 billion) last year.

“We are constructively involved in these discussions and will consider any proposals carefully that no political discussions on these issues have yet taken place with the 139 countries involved in this process,” said a spokesman for the Irish Department of Finance. .

Biden’s strategy has two sides: what it can implement at home and how it can affect international change through consensus.

It plans to raise the corporate tax rate in the U.S. to 28% with the goal of funding its ambitious $ 2 trillion infrastructure scheme.

Meanwhile, reaching an agreement on a global minimum tax rate would help prevent lower-rate jurisdictions, such as Ireland, from reducing the U.S. tax rate.

“The piece that will have the most consequences for Ireland are the proposals to strengthen the notion of a global minimum tax, which would somehow each country charge approximately the same kind of percentages to companies operating in their jurisdictions,” Brian Keegan, director of public policy for Chartered Accountants Ireland, told CNBC.

“This is one aspect of the plan that the United States cannot achieve on its own.”

The United States is not alone in its ambitions, and French Finance Minister Bruno Le Maire has expressed his support.

But Biden has no time on his side, as any change in the 2022 midterm elections could hamper his ability to push for measures at home.

“Ultimately, any tax change is not a tax change, it is a political change, which also points to the urgency of the Biden tax plan,” Keegan said.

At the international level, a relatively quick consensus could be reached.

“The OECD process has been going on for at least two years, so there is already a lot of technical work being done at OECD level to make that happen,” Keegan said. “A lot of machinery that would run a minimal system has already been worked out.”

“I think we can say in about 18 months that you will have this global minimum tax effectively set out in US legislation, across the EU and probably a little wider than that,” Cobham added.

Even with a rising tax rate, it is unlikely that major technology companies such as Facebook and Google, which have established large employee bases and physical infrastructure in Ireland, will pack up and leave.

“Obviously (Ireland) is a place with real economic activity, it’s not that there aren’t multinationals with employment and sales in Ireland, but the declared profits are completely disproportionate,” Cobham said.

“When this happens, a certain amount of tax revenue is lost, but this is offset to a certain extent because you are forced to effectively put a higher rate on what is real. It is possible that the revenue will not be as high. “.

Where new challenges may arise for Ireland is to attract new foreign direct investment in the future, in a world with more equitable tax conditions.

With the winds of change blowing, Ireland will have to rely more on its other attributes: its skilled workforce, which is an English-speaking EU country, and its proximity between the US and Europe connected by strong ties. of travel.

“There could be a fairly costly, albeit relatively short, adjustment period in which the current Irish business model doesn’t work and there aren’t any new ones,” Cobham said. “If you’re the Irish government and if you haven’t already, you really have to focus on that in the next two months and say‘ what are we going to do in a year or two from now? ‘”