Ireland’s competitive corporate tax rate – what happens next?

At 12.5%, Irish corporation tax is world famous and notoriously low compared to most other countries.

As Aidan Byrne, Principal Tax Partner at RSM Ireland, explains, this has long been a crucial factor in Ireland’s foreign direct investment strategy. All companies, especially large multinationals like Apple, Facebook and Pfizer, yearn for certainty.

“The fact that he’s been around since around 2000 is a huge plus for companies because they know he’ll be there, you can trust that,” Byrne says, referring to the tax rate.

This attractive tax rate is not the only factor: there is the ease of doing business here, an English-speaking workforce and access to the European market are all factors that also come into play. however, a low tax rate is a big carrot for businesses.

Changes

How long Ireland can maintain that much-vaunted 12.5% ​​rate is a hot topic as the OECD aims to finalize a global tax deal and implement a minimum corporate tax rate of 15%.

131 countries have signed this agreement, but Ireland as well as Hungary and Estonia have not. Time is probably not on their side.

Hold on

“The reason Ireland is holding on is because the 12.5% ​​has been a cornerstone of Irish industrial policy for the last 20 years,” Byrne said. This rate has been a huge selling point for a small country, and it has paid dividends.

“The finance minister getting attached to it will be a bit like a Michael Collins-type moment,” Byrne says with a wry laugh, referring to when Collins returned from London with the treaty signed, leading to war. Irish civilian. war.

“What companies are looking for is certainty,” he says.

For example, Byrne highlights the UK where the government promised to lower the tax rate after Brexit. Instead, an increase of 19% to 25% in 2023 is expected.

How much is corporation tax in Ireland?

The Irish government collected €11.8 billion in corporation tax in 2020, up 9.5% from 2019 according to new figures released by revenue. Keep in mind that the world witnessed a global pandemic, but the increase was driven by massive performance, especially in the technology, pharmaceuticals and financials sectors. Ireland’s ten largest corporations accounted for just over half of all corporation tax revenue in 2020.

A tax hike would obviously affect the bottom line.

And then ?

“It looks like the tide has turned against us and we’re kind of in strange company,” Byrne said, referring to countries that haven’t signed the deal.

Byrne thinks what is likely to happen is that the OECD, aligned with tax reform proponents, will set a headline tax rate for large corporations, those with likely revenues above 750 million euros.

“Ireland will have to make a judgment then,” Byrne said. “But there is a long way to go before a final agreement is reached in October at the next G20 summit.”

Dig deeper

Ireland is looking at major tax changes to its tax system

Why is the Irish market famous?