At least three reasons why Ireland is right to resist 15% global corporate tax push

Google HQ Dublin: Discussions on changing the tax regime for multinationals have been in play for almost a decade

There are at least three reasons why Ireland’s current resistance to international rules establishing a minimum 15% tax rate for multinationals is warranted.

Discussions on changing the tax regime for multinationals have been in play for almost a decade but, in the last two months, the negotiations which involve 139 countries have a new momentum.

The reason for this is straightforward. It is because the US has thrown its weight behind the process. 

The US wants to increase the tax rates it applies to companies but is keen to do so in a way that doesn’t dilute its own competitiveness as an investment destination. A good way for the US to preserve its competitiveness is to work to ensure that other countries in the world raise their own tax rates as well.

Significant tax reform in the US can be a long and convoluted process. There is no guarantee that all the ambitions of the current Biden administration will see the legislative light of day in the US Congress, yet the rest of the world is being asked to subscribe in advance to the US plans. This is like selling a car but handing over the keys before the cash is received.

That risk is the first reason for resistance and should justify a hesitant approach by any country, not just Ireland. So why have almost all of the 139 countries in the process already agreed to participate?

The answer to that question brings us to the second reason for Ireland to be hesitant. Many of the 132 countries which have already signed up will end up collecting more tax than before, but Ireland may not.

Every country has been damaged by the pandemic and every exchequer needs more funds. There are few easier ways for a finance minister to bring in money than to raise taxes on companies with the political excuse that the higher rates are part of a global consensus.

We can be sure about this because we did it ourselves 25 years ago. The Irish headline 12.5% tax rate was introduced at the behest of Brussels to homogenise existing 40% and 10% rates. As most companies, at the time, paid their taxes at the 10% rate, the introduction of a 12.5% rate was a tax hike.

The same principle will apply in many countries if a 15% minimum effective rate becomes a reality. High headline rates do not mean high effective rates. Many countries now report effective rates of less than 10% because there can be a big difference between the profit a company earns and the portion of that profit which is taxable.

There is still little agreed detail in the proposed new arrangements for how much corporate profit will get taxed.

The third reason is that kowtowing now is not necessarily going to salvage any international reputation. Some commentators claim that holding out against the emerging consensus is causing significant reputational damage.

Perhaps, but previous Irish tax policy changes to reflect international developments never stopped Ireland from being described as a tax haven, notably in nations which compete with us for investment. Despite these claimed reputational problems, foreign businesses continued to invest in the Irish economy, and other countries continued to conclude international tax treaties with us. A reputation for consistency has value too.

Every country is economically more vulnerable as the world emerges from the pandemic. This grand global design will favour many, particularly the larger, countries. If it is to the detriment of Ireland to join in, it is right for the Government not to sign up.

• Brian Keegan is director of public policy at Chartered Accountants Ireland