Huge Irish interest as new global tax for multinationals gets closer

Much of the State's new-found prosperity of the past three decades is directly based on jobs created by multinationals and on the billions in corporation tax the large foreign corporates pay the exchequer

The G7 group of the world's largest economies and the Organisation for Cooperation and Development are hosting meetings next week on reaching agreement on setting a global floor, possibly set at 15%, for countries to tax multinationals. 

Hints about a new agreement over global tax and multinationals — with obvious implications for Ireland — may come as soon as tomorrow and ahead of an accord that is increasingly likely to be struck next week.   

The G7 group of the world's largest economies and the Organisation for Cooperation and Development (OECD) are hosting meetings next week on reaching agreement on setting a global floor, possibly set at 15%, for countries to tax multinationals.                         

But a virtual meeting of G7 countries tomorrow, which has on its agenda the global economic recovery from the Covid pandemic and climate change, may also provide hints about the shape of an emerging deal.   

Ireland has much skin in the game, according to experts, because so much of the State's new-found prosperity of the past three decades is directly based on the hundreds of thousands of jobs created by multinationals here, and as significant, on the billions in corporation tax the large foreign corporates, such as Apple, Pfizer, and Google, pay the Irish exchequer. 

It is widely accepted an overhaul of the global tax regime will have big effects on the amounts of revenue the Irish State collects from the scores of multinationals which have set up their European head offices in Ireland on the basis of the competitive 12.5% tax regime levied on their profits.            

The exchequer's corporation tax receipts raced from only €4.6bn in 2014 to €6.9bn in 2015, and have since ballooned to €11.8bn to now account for a record 20% of all tax receipts collected by the State. 

That has raised concerns about the way the Government has bet on the continuing flow of corporation tax revenues to fuel its future spending programmes.  

The Irish Fiscal Advisory Council (IFAC) earlier this week, in a report which slammed the Government for its budget planning, warned that a group of only 10 multinationals accounted for 56% of the €11.8bn collected in corporation tax receipts last year. 

The Government has said that €2bn and possibly as much as €4bn a year could be lost under global tax reforms, and IFAC warned in its report that just five firms quitting Ireland could mean €3bn of lost corporation tax receipts.

University College Cork economist Seamus Coffey — one of the country's leading experts on multinationals and tax — said that Irish observers will be looking at how high the rate countries will agree to strike the minimum global rate. 

The meetings in the coming days are about "the politics and diplomacy" of reaching an accord on the global tax overhaul, he said.

He said that a few months ago the US was seeking a rate of 21% for its own minimum tax floor it levies on its companies — which could likely have significant effects on future investment flows into Ireland — but appears to be be focusing on setting a global minimum rate of 15%.  

From a long term policy perspective there is huge uncertainty. I do not think there should be any change in Ireland immediately without knowing how all this is going to play out. 

"From our perspective the US minimum rate of tax, if it was at 21%, would significantly erode the attractiveness of Ireland's 12.5% tax," Mr Coffey said, if US president Joe Biden was to get his way.           

France has long pressed for a global reform and has often targeted Ireland over the 12.5% rate. 

The G7 meeting of finance officials in London next week must strike an agreement to corral the rest of the world into changing how much tax multinationals pay and where, French minister Bruno Le Maire said today. 

Mr Le Maire said that while the US proposal for a 15% floor would feature in the London talks, the key issue for France remains new rules on how to divide up rights to tax multinationals — the so-called pillar one of international negotiations.