Eamon Quinn: Why Ireland conceding over corporate tax rate is a significant event

Minister for Finance Paschal Donohoe Minister for Finance Paschal Donohoe speaking to reporters, at Government Buildings

The battle for Ireland to keep the 12.5% rate for multinationals is officially over but the war to retain the low corporate regime to attract multinationals will only intensify in the coming months. 

Finance Minister Paschal Donohoe has declared something of victory in his summer campaign but experts say the significance of Ireland conceding changes to the tax regime is a significant event. 

It has emerged that the Government has struck an agreement with the EU for Ireland to run two corporate tax rates. Most small Irish-owned firms will continue to pay the 12.5%, while the higher rate of 15% will apply to very large companies, including the foreign-owned multinationals and large Irish-owned firms. 

It comes after long years of rearguard action by Ireland to soften the initiatives to overhaul the way multinationals are taxed. The process was driven by the G7 wealthiest and most populous economies and coordinated by talks in the OECD of around 140 countries, including Ireland. 

Over three decades Ireland has profited enormously by attracting a huge number of multinationals to set up base here, lured by the 12.5% tax regime.   

Multinationals such as Pfizer, Apple, and, Google, brought thousands of jobs. They also accounted for the lion's share of the €12bn in corporate tax receipts last year.  

At the OECD level, Minister Donohoe has hailed the dropping of a reference to "at least" from the 15% minimum tax rate.  

Tax experts say that that Ireland over the summer has secured the best from a poor hand. 

Analysts warn that, at EU level, that Ireland's work will now intensify.                       

The 15% rate will apply to large companies with a turnover of €750m, or more. That means, says the Government, that 1,500 foreign-owned multinationals employing 400,000 people, as well as 56 Irish-owned which employ 100,000 people will now pay higher rate of 15%. Some 160,000 firms employing 1.8 million people will continue to pay the 12.5% rate.  

In June, the G7 reached agreement to push for for a global minimum tax rate of 15%. That tipped the balance decisively in favour of the populous and powerful economies and threatened to dilute the lure of Ireland's 12.5% headline rate.                                     

From an Irish perspective, there was arguably an even less favourable clause. 

The bombshell in the short communiqué was the G7 agreement to put their weight behind allocating the carve up of a chunk of the taxable profits earned by multinationals in the country or "market countries" where the multinationals make the sales. The Government played for a little bit of time. It had long said that the OECD initiatives could cost Ireland around €2bn in exchequer revenues.    

Feargal O'Rourke, managing partner at PwC, said the Government's estimate of a losses in revenues will likely even out because it will collect more revenue form the 15% rate.                          

Brian Keegan, director of public Policy, at Chartered Accountants Ireland, said Ireland is reverting back to two corporation tax rates.       

Mr Keegan said the bulk of Irish firms will continue to pay the 12.5% rate, while it has been a strategy of the IDA over a number of years to attract small emerging global companies and let them grow.

"It is possibly one of the better outcomes to come out of the major international moves," he said. "We are in a better position that we were a few weeks ago but this is the start of difficult negotiations to ensure we can consolidate the gains we have made," Mr Keegan said.      

UCC economist Seamus Coffey, the former chair of the Irish Fiscal Advisory Council, said that it was unclear what the effects will be on future investments into Ireland by US multinationals, in particular. 

Mr Coffey said that significance of changing the tax regime cannot be downplayed, however.

The set of proposals are "clearly designed to benefit the larger and richer countries. "I do not think you can downplay the significance of this," he said.