Raising corporate tax is the ‘right decision’

Cabinet has approved an increase in Irish corporation tax from 12.5% ​​to 15% for companies with a turnover of over €750 million.

The reforms were negotiated by the OECD with 140 countries, as part of a broad program to modernize global tax rules, make them fairer and reduce the use of aggressive tax planning by some large multinational companies. .

Speaking at a press conference, Finance Minister Paschal Donohoe said the deal involves “profound reforms to the global tax framework”.

He said he was looking to make changes to the deal to ensure “certainty and stability”.

“I believe we have reached this point now,” he said. “It’s the right decision. It’s a sensible and pragmatic decision”, and it will be “critical to creating” certainty.

The revised framework confirmed that the proposed minimum rate of 15% will only apply to companies with an annual turnover of more than €750 million per year.

It will affect 56 Irish multinationals employing 100,000 people. It will also affect 1,500 foreign multinationals employing 400,000 people here.

However, 160,000 businesses employing 1.8 million people will not be subject to the new rate. These companies will continue to pay corporation tax at the current rate of 12.5%.

The Government has received assurances both on this point and on the maintenance of Research & Development tax credits “at the highest level” within the European Commission.

The Ministry of Finance still indicates that the impact on corporate tax revenues will be in the order of 800 to 2 billion euros per year.

It is expected that the new rules will come into force from 2023.

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On RTÉ’s Prime Time programme, Tánaiste Leo Varadkar said the government is confident that the corporate tax hike for large companies is “a once in a generation event and the rate will not increase with time”.

“Once we came to the conclusion that this was likely to happen, we decided it was best for Ireland to be inside the tent,” he said.

“We wanted concessions and protections before we went into the tent, and we negotiated very hard and took our time in making that decision, and because other countries really wanted Ireland, they were prepared to. make these concessions to us and to remove this term. ‘at least’ before the 15%.”

He said the government had taken into account the loss of revenue and put in place a contingency to provide for this change and he said it would not impact budget plans or future budget plans.

Paschal Donohoe described the decision as an “important step” in what has been an ongoing process.

He said it was important to think about what would happen if Ireland decided to stay out of the deal.

“It is essential that Ireland continues to adhere to key international agreements, particularly those which are likely to have the support of the international community.”

If Ireland were not part of the agreement, it would “lose influence on the critical decisions” which will be taken in the coming months on the modalities of application, the minister told a press conference .

Failure to register would cause continued uncertainty for businesses operating in Ireland, he said.

He added that the design of the global minimum tax means that a country can impose a “top-up” tax on a subsidiary of a multinational company, which has been taxed below the effective minimum in Ireland, which means that if Ireland did not apply the overall minimum tax rate, this would mean that another jurisdiction could levy the tax.

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The European Union and the Commission have assured him that the directive it will propose “will be faithful to the agreement and will not go beyond this consensus”, he said.

Minister Donohoe said “it is essential that as a small open economy” we can influence the evolution of global tax rules.

Mr Donohoe said when “at least 15%” was mentioned, some parties wanted him to move up. The minimum rate will be 15%, “but we got the ‘at least’ removed,” Mr Donohoe said.

Ireland made its case and it was “acknowledged”, and we “moderated those ambitions and views”.

Asked if other countries also wanted to “at least” withdraw from the deal, Mr Donohoe – who is also chairman of the Eurogroup of eurozone finance ministers – said that “removing of “at least”…it was Ireland and myself”. He said he’s been doing the business since July.

“The last thing on my mind is who will be the future president of the Eurogroup,” he said. As for the consequences for Ireland outside of such a deal, securing such positions was not a factor, he said.

We would have faced reputational and economic risks if we had stayed out of the deal, he said.

“We will continue to be able to do our best,” he added.

Minister Donohoe said that in the United States there is an ongoing debate in Congress about changes to their tax system that will bring them in line with the OECD agreement.

Given the “significant investments of American multinationals here”, this is significant, he said.

The government’s agreement will lead to “a new impetus to this process”.

“I absolutely believe that our interests are better served under the agreement,” he said.

Meanwhile, Estonia has also declared that it will sign the OECD tax agreement today.

Prime Minister Kaja Kallas said joining the reform would ensure “we have the best chance of ensuring that Estonia’s business environment and tax policy continue to work in the interests of a better future for all of us”.

Broad support for tax deal

Opposition parties supported the decision to sign the OECD tax agreement.

Sinn Féin said it accepted the merits of the process and that Ireland could not be an exception or be called a tax haven.

Party leader Mary Lou McDonald said there must be absolute assurance that the 12.5% ​​rate will still apply to SMEs which are the backbone of the Irish economy.

She also said the government needs to be sure that Ireland can still retain a level of control in setting and deciding rates.

Labor said the move would not negatively impact existing jobs or the investment pipeline.

Finance spokesman Ged Nash said Ireland should be confident to harness its highly skilled workforce and sophisticated, mature economy.

He also called on the government to publish detailed financial projections of the cost of the move.

People Before Profit said the change was long overdue.

MP Richard Boyd Barrett said it was fair that “incredibly profitable companies that have been involved in very aggressive tax avoidance strategies pay a little more tax”.

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IDA Managing Director Martin Shanahan said the announcement would not come as a huge surprise to multinational companies operating here and would not negatively impact the existing base of foreign direct investment. in Ireland.

On RTÉ’s Six One, he said there had been an extraordinarily strong flow of investment over the past few weeks and months and the pipeline looked solid. He believes the country can continue to win investment as it has done in this global setting.

Ibec, the group that represents Irish business, said today’s announcement is the “right move, at the right time”.

Reporting by Mícheál Lehane, Robert Shortt, Sandra Hurley