Ireland faces long road to understanding fallout from global tax overhaul              

US secretary of the treasury Janet Yellen was in Dublin this week for talks with Finance Minister Paschal Donohoe on global tax and other issues. 

The fallout from the overhaul of the global tax regime for Ireland will only become clearer in the coming months, experts at home and abroad have said. 

The Government last month signed up to an agreement to increase the tax on multinationals and large companies to 15% – up from the existing headline rate of 12.5% under Ireland’s long-standing regime. 

The Department of Finance has assessed that the exchequer will lose €2bn in annual revenues it would have otherwise collected from multinationals when the agreement finally comes into force in the coming years.   

Experts have said the accord will mean Ireland will attract fewer foreign direct investment projects in the future from, in particular, US multinationals, which have helped underpin the prosperity of the State over the past three decades. A handful of multinationals such as Apple, Pfizer, and Google account for the vast bulk of the almost €12bn the Government raised last year in corporate taxes.

In a new report on Thursday, Fitch Ratings highlighted the key role multinationals played in Ireland's "remarkable economic performance" during the Covid-19 crisis, in providing a huge number of jobs and enormous tax receipts for the Government. 

However, Fitch said it was too early to say what effects the Irish economy will see from the new global tax accord. 

"The Irish economy’s reliance on corporate income tax revenue from a few foreign-owned [multinationals] exposes the sovereign to proposed changes to the global corporate tax framework. Lack of detail makes it too early to fully assess the impact, but the changes could cause revenue to fall and FDI inflows to slow," it said.

Roadmap

The roadmap to implementing the global deal still has a long way to go. 

Emma Arlow, tax director at Deloitte Ireland, said Ireland was no where near the end point, as technical meetings over the coming weeks will extend into 2022. 

Rules governing the way the global tax rate of 15% will work are expected at the end of November. The EU Commission will then introduce a directive towards the end of the year, starting the process of parliaments across the EU bringing it into law. 

Ms Arlow said the part of the agreement that covers the way tax revenues will be allocated between the market economies where the multinationals generate the bulk of their sales, is due to be signed off in 2022 and to be implemented in 2023. 

The publication of the directive will make it easier to assess how the global agreement will affect Ireland, she said. 

Peter Vale, tax partner at Grant Thornton, said he thought it ambitious that the part of the agreement involving the way market economies share out the tax revenues will be in place by 2023. 

However, Mr Vale remains upbeat about the outcome.

"It could still be a bigger pie, with a smaller tax take from that" for the Irish exchequer which means that Ireland emerges from the process in good shape, he said.