Eamon Quinn: Joe Biden's tax plan puts Ireland and the multinationals back in the frame

The sting for Ireland is the US president's proposal to raise the Trump-era minimum tax rate on earnings generated overseas by US companies to 21%.
Eamon Quinn: Joe Biden's tax plan puts Ireland and the multinationals back in the frame

US president Joe Biden and Taoiseach Micheál Martin during a virtual meeting for St Patrick's Day. Mr Biden's new plan could upend the global tax regime that has anchored Irish prosperity since the late 1980s. Picture: Jim Watson/AFP via Getty Images

In the thick of a global pandemic, any initiative to overhaul global tax will likely leave most people cold. 

Ireland stumbled across its 12.5% corporation tax regime almost three decades ago and accidentally unlocked an almost magical formula to attract thousands of US multinational jobs and billions of their tax dollars to these shores.

International criticism came with success. Down the years, the State was accused of tax banditry by French and German politicians and even in more recent times faced allegations from British aid charities that Ireland’s accounting effectively enabled multinationals to steal the tax resources of the developing world’s poor.

But the latest threat has come from an unexpected source and for some has brought something of a bitter sting of betrayal. For here was a newly elected American president, Joe Biden no less, Ireland’s best White House friend ever since JFK and Bill Clinton, and just weeks after the St Patrick’s Day schmaltzy jamboree, proposing with a tax bill what a clutch of the European superpowers have so far failed to do — upend the global tax regime that has anchored Irish prosperity since the grim days of the late 1980s.

On the face of it, the Biden tax plan — designed to pay for his proposal to inject $2trn into crumbling American infrastructure — should spell good news for Ireland’s low tax regime because it's based on clawing back a good part of Donald Trump’s corporate cuts of 2017.

His plan is based on raising billions through hiking the US headline rate of corporation tax to 28% from Trump’s 21% rate, which one might think would be no bad thing for Ireland which has thrived in attracting scores of US multinationals by competing against the higher tax rates set in much of the rest of Europe.

But the sting for Ireland in the Biden plan is his proposal to raise the Trump-era minimum tax rate on earnings generated overseas by US companies to 21%.

The higher the US minimum rate goes beyond Ireland’s 12.5%, the less potent the lure for US corporates to drop future investments into Ireland — as opposed to say investing in France or Germany. 

That's because Biden's minimum tax plan dilutes the attractiveness of Ireland’s offering compared with higher-taxed continental Europe when a US corporate goes to pay its tax bill on its worldwide earnings to the US.

There is almost unanimous agreement from observers who have watched the threats to Ireland’s 12.5% regime come and go that the Biden plan indeed is a big deal.

People with only a sketchy knowledge of the first of the two big debt crises to rock the State — the one in the 1980s before the banking and commercial property crash of a decade ago — can easily forget that Ireland’s prosperity is based on shallow soils.

Ireland's setting of a low corporation tax was more of an act of desperation from the experience of the 1980s but one that worked beyond everyone’s dreams; the guff about Ireland’s skilled, young, and English-speaking workforce only helped to obscure the importance of the State’s low tax in anchoring prosperity here.

The small industry of tax advisers to the US multinationals that had grown up in Dublin and Cork is evidence of the importance of the Irish low tax offering.

Another measure is to pick the four US multinationals that have never been far from the global headlines in recent times. Apple, Pfizer, Google, and Amazon employ 25,000 people across their major European facilities located in the Cork and Dublin regions. There are other measures too that point up the threat of Biden’s plan for Ireland.

After the bizarre disruption of the Trump years when the White House turned its back on its European allies, Biden is pushing agendas that align with the interests of both the US and the big European powers.

One of those common interests is the reform of the way multinationals are taxed around the world and his tax plan has energised an existing push led by the richest nations, under the auspices of the OECD, to upend the old order.

Goodbody chief economist Dermot O’Leary said “with the US now clearly on board” that changes to the rules over taxing multinationals have been given momentum. 

Given the huge role US multinationals play here, Mr O'Leary said that Ireland is effectively the 51st state of the US. And citing US tax figures for 2018, he said US firms employed almost 7% of the Irish workforce and paid almost €7bn in corporate tax revenue to the exchequer, "more than Germany (€4.3bn) and France (€2.3bn) combined". No one thinks that the changes will have immediate effects here.

UCC economist Seamus Coffey, a former head of the Irish Fiscal Advisory Council and author for the Department of Finance of key corporate tax studies in the past, said Biden's plans for the US companies to pay a minimum tax rate on a country-by-country basis will in time weaken the lure of Ireland's 12.5% tax regime to attract huge US company investments. 

John Whelan, a leading expert and a former head at the Irish Exporters’ Association, said that Ireland “had got away with it for quite some time" and that the significance of Biden's bid for a global 21% minimum rate should not be understated. 

Get-out clause for Ireland

There could, however, be something yet of a get-out clause for Ireland, if the US tax plan sets limits to the global amounts that will be subject to the 21% tax, said Mr Whelan.

Across Europe, from the proponents of tax reform, Biden’s tax plan was cheered for giving heft to the OECD talks for big changes. Bruno Le Maire, the French finance minister, said the latest US proposal could unblock international reform. 

He pointedly added that he was open to a global minimum corporate tax rate above the 12.5% rate after Washington proposed a rate of 21%.

Luxembourg also welcomed the US plans. Its finance minister Pierre Gramegna acknowledged that the concerns of "some European countries", including the Benelux countries, Scandinavian countries, as well as of Ireland, need to be taken into consideration.

The French have long insisted on upending Ireland’s tax advantages. Barely a fortnight after forming his coalition in 2011, and attending his first European leaders’ summit, taoiseach Enda Kenny famously faced what he described as a bit of a “Gallic spat” with Nicolas Sarkozy, the then French president. 

Sarkozy wanted Ireland to increase the 12.5% rate as the price for it to secure reductions in the penal interest rates the Europeans were initially charging Ireland for their bailout loans. By insisting that the corporate tax rate was not for sale, Dublin easily saw off that challenge, but not necessarily at no cost.

Subsequently, Apple’s taxes and Ireland were thrust onto the global headlines by a US Senate hearing in 2012. There then followed the probe led by EU commissioner Margrethe Vestager into a bunch of US multinationals, including Apple’s tax dealings with Ireland. 

The Government has long accepted that it must make the best case as the winds over global corporate taxes have changed. It has already assessed it will lose some of the tax bounties from the multinationals in future years under the existing OECD reform plans. 

Finance Minister Paschal Donohoe this week reaffirmed the Government’s strategy in managing change through the OECD talks but also acknowledged his reservations about the pace of change. As for “Uncle Joe Biden”, senior economist Jim Power said the new president is friendly to Ireland, but only to a point. 

He is, after all, elected to look after the US and he is doing that through a massive fiscal stimulus which has to be paid for “and increasing the corporation tax cake” is an important way of securing that goal. 

Mr Power said there is a moral issue in play too because Biden would firmly believe that multinationals should pay more tax. Regardless of the motives, Biden's tax plan has put Ireland and the multinationals and potentially Irish prosperity back in the frame.

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