Global tax reform risk to Ireland remains 'distant', ratings agency says

Consensus around reforms will be 'difficult to achieve and implement'
Global tax reform risk to Ireland remains 'distant', ratings agency says

G7 leaders agreed a 15% global minimum corporate tax rate last month, which has since been tentatively agreed by OECD members.

The threat to Ireland from new global corporate tax reform proposals is “distant”, but could, in a worst-case scenario, result in the exit of some multinationals from the country, one credit ratings agency has said.

“Changes to the international corporate tax landscape will most likely reduce Ireland’s corporate tax base. The Government already expects this,” said DBRS Morningstar’s Jason Graffam.

“But, there is a long road to travel before adjustments to the global tax environment force structural change to Ireland's macroeconomy,” he said.

DBRS said that, in its assessment, consensus around global tax reforms will be "difficult to achieve and implement".

However, DBRS said serious risks do still exist for Ireland and its foreign multinational-reliant economy.

Refused to sign up

Ireland was one of only nine countries that refused to sign up to the OECD’s proposals for global corporate tax reform last week. 

In all, 130 out of 139 OECD members backed the plans.

Those plans covered two areas — one proposal giving some taxing rights to market countries, and another proposal for a global minimum corporate tax rate. 

Finance Minister Paschal Donohoe last week said Ireland remains committed to reaching an agreement on new global tax rules. 

However, he said he could not agree with the notion of a 15% minimum global corporate tax rate, which would require Irish-domiciled multinationals to “top-up” their tax contributions.

That is Ireland’s main sticking point and the one where DBRS sees most risk.

“A forced change to Ireland's tax rate might spur firms to reassess their commitment to Ireland and shift activities or intangible assets to other jurisdictions that do not comply with the new global minimum standards. An exit of a handful of large multinationals could have large spill over consequences to the rest of the economy,” it warned.

However, DBRS said Ireland has “significant” non-tax advantages that keep it competitive should reforms threaten its economic model. 

The agency said while ongoing efforts to reform the global corporate tax system do risk reducing Ireland’s corporate tax base, the Government has already started to adjust revenue expectations to accommodate such a shock.

Mr Donohoe has previously estimated Ireland could lose out on around €2bn a year in corporation tax receipts depending on what is finally agreed.

Fall short of goals

Meanwhile, European economic think-tank EconPol has claimed the OECD’s tax reform proposals will fall well short of its desired goals and will only affect 78 of the world’s 500 largest companies.

"The number of companies is so low mainly because the tax applies only to companies with revenues above $20bn, which earn a rate of return on revenue above 10%. This greatly limits the scope of the tax," it said.

“Around 64% of the Pillar 1 tax [giving rights to market countries] will be attributed to US-headquartered multinationals — only 37 European companies are likely to be affected,” EconPol said.

Mr Donohoe was accused, last week, of risking Ireland's international reputation by not signing up to the OECD plans.

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