Threat to Ireland's prosperity looms large as US tax plan 'to hit its 51st state'          

Ireland's low corporation tax rate now faces the threat of Joe Biden's White House imposing a 21% minimum tax rate on overseas profits

US treasury secretary Janet Yellen, in her first speech, set a summer deadline for the biggest multi-lateral overhaul yet to reach agreement between the richest nations to harmonise corporation tax rates.

The threat to Ireland's 12.5% corporation tax regime, the anchor of the State's prosperity, looms large as the new White House under President Joe Biden doubled down on its commitment to up-end the decades-old way US multinationals are taxed around the world. 

The threat has increased after US treasury secretary Janet Yellen, in her first speech, set a summer deadline for the biggest multi-lateral overhaul yet to reach agreement between the richest nations to harmonise corporation tax rates.

The multinationals, in particular US pharma and IT giants, have done much to insulate the Irish Government's finances from the worst of the Covid economic storm, contributing the lion's share of the €11.8bn the exchequer collected in corporation taxes last year. 

Those revenues went a long way to financing the billions of euro spent for households and businesses.            

Ireland's low corporation tax rate now faces the threat of Biden's White House imposing a 21% minimum tax rate on overseas profits.  

Co-operation with the OECD

The Irish Government has long seen co-operation with the OECD as the best way to manage the inevitable erosion of the benefits that the 12.5% rate has brought the State for almost three decades and has acknowledged that change is on the way.   

The new threat is the pace of change as President Biden's White House puts its shoulder behind the reforms to get US pharma and IT giants to create more jobs and plants in the US, and not in other parts of the world, including Ireland, from which the goods and services are exported into the US.        

"With the US now clearly on board, changes to rules governing the taxation of multinational corporations is on the way," said Goodbody chief economist Dermot O'Leary.

"We have described Ireland as the 51st state in the past, given the large role played by US multinationals in the Irish economy. As such, these changes will have important implications here in the coming years," Mr O'Leary said. 

Citing US tax figures for 2018, he said US firms employed almost 7% of the Irish workforce and paid almost €7bn in corporate tax revenue to the exchequer, "more than Germany (€4.3bn) and France (€2.3bn) combined". 

The speech by Ms Yellen is significant because she called for leading economies to work together to harmonise corporation tax rates around the world, meaning that the US is, along with many of the largest EU member states, looking to set a minimum tax rate, which would erode the attractiveness of Ireland's 12.5% tax regime.

Global minimum tax rate

Mr O'Leary said a global minimum tax rate has the potential to undermine Ireland's competitive rate, depending on the level that is set. Ireland will now have to compete for multinational jobs on a new front.

"Other features, such as access to the large EU market, are also vitally important and will become even more so as these new rules are rolled out," Mr O'Leary said. 

"While it is expected that agreement at OECD level may come as early as this summer, changes will take some time to be implemented across multiple jurisdictions. That time should be used wisely," he said.