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Biden’s tax revision puts Ireland’s corporate rate in the spotlight

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United States President Joe Biden speaks during a virtual meeting with Irish Prime Minister (Taoiseach) Micheal Martin on March 17, 2021 in the Oval Office of the White House in Washington, DC. from Ireland.

Erin Scott | Pool | Getty Images

DUBLIN – Ireland’s low corporate tax rate is back in the spotlight as US President Joe Biden seeks to renew the global tax landscape.

The country’s 12.5% ​​rate was central to its ability to lure dozens of large corporations, mostly US tech and pharmaceutical companies, to the coast, often creating many jobs.

Meanwhile, the Irish tax system has caused a lot of trouble, particularly in the € 13 billion tax dispute between Apple and the European Commission.

Biden’s “Made in America” ​​plan for a global minimum tax rate has rekindled the flame while Treasury Secretary Janet Yellen said the “race to the bottom” on corporate tax rates must come to an end.

The consensus on taxes is a debate that has been faltering for years, due to the OECD negotiations on a global minimum corporate tax rate and various efforts by national governments to introduce digital taxes.

Alex Cobham, economist and chief executive of the Tax Justice Network advocacy group, told CNBC that while Biden’s proposals didn’t come up with anything that hadn’t been proposed before, this time there is a bigger push behind it.

“We are very positive about what the Biden administration has done, in part for both the big narrative postponement and the detailed policy,” he said.

“There was nothing new there, but we understand that the government got so hard on the media and they said that’s it, that’s the big deal.”

Changes in the corporate tax landscape will affect Ireland, which has stuck to its 12.5% ​​rate for years. Corporate income tax revenue amounted to 11.8 billion euros last year.

“We are engaging in these discussions constructively and will consider all proposals carefully, noting that there have not yet been any political discussions on these issues with the 139 countries involved in this process,” said a spokesman for the Irish Treasury Department.

Tax strategies

Biden’s strategy has two aspects: what can he implement at home and how can he bring about international change through consensus?

He plans to raise the US corporate tax rate to 28% to fund his ambitious $ 2 trillion infrastructure program.

Meanwhile, an agreement on a global minimum tax rate would help prevent US tax revenues from being undercut by countries with lower tax rates like Ireland.

“The piece that will have the greatest consequence for Ireland is the proposals to strengthen the notion of a global minimum tax, according to which, in a way, each country would in fact levy roughly the same percentages on companies operating in its territory.” Brian Keegan, Public Policy Director for Chartered Accountants Ireland, told CNBC.

“That is an aspect of the plan that the US cannot achieve on its own.”

The US is not alone in its ambitions, however, as French Finance Minister Bruno Le Maire expresses his support.

But Biden has no time on his side as changes in the 2022 midterm elections could affect his ability to enforce action at home.

“Ultimately, any tax change is not a tax change, but a policy change that also indicates the urgency of the Biden tax plan,” said Keegan.

A consensus could be reached relatively quickly at the international level.

“The OECD process has been going on for at least two years, so a lot of technical work has been done at the OECD level to make it happen,” said Keegan. “Many of the machines that would allow a minimum of system work have already been worked out.”

Ireland’s future

“I think we can say in about 18 months that you will have this global minimum tax effectively in legislation in the US and across the EU, and probably a good bit further,” Cobham added.

Even with a rising tax rate, big tech companies like Facebook and Google, which have large numbers of employees and physical infrastructure in place in Ireland, are unlikely to pack their bags and go.

“Obviously (Ireland) is a place with real economic activity. It’s not that Ireland doesn’t have multinationals with jobs and sales, but the reported profits are completely disproportionate,” Cobham said.

“If you can do that, you lose a certain amount of tax revenue, but that is compensated to some extent because you’re effectively forced to set a higher rate on the things that are real. The revenue may not be that high. “

New challenges may arise in Ireland as new FDI attracts in the future, in a world where taxation is level.

In the face of the winds of change, Ireland will have to rely more on its other qualities: its skilled workforce, its English-speaking EU country and its proximity between the US and Europe linked by strong travel links.

“There could be a rather costly, if relatively short, adjustment period where the current Irish business model doesn’t work and there isn’t a new one,” Cobham said. “If you are the Irish government and you haven’t done it yet, do you really need to focus on that over the next two months and say what we’re going to do in a year or two? ‘”

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Steven Gregory