While the Democrats kick the can on the debt ceiling as a bitter partisan fight threatens to derail President Biden's entire domestic agenda, a key piece of his foreign agenda has just fallen into place.
In a commitment that should clear the way for the OECD to lead a global corporate tax reform initiative that would represent the biggest change to international corporate tax rates in a century, Ireland has agreed to abandon its 12.5% corporate tax rate and sign up for the new 15% minimum global corporate rate being pushed by the Biden Administration.
According to the FT, the deal is expected to cost Ireland €2 billion ($2.3 billion) in lost revenues in the coming years.
Finance Minister Paschal Donohoe told the FT that this change in the baseline tax rate would be the only significant change as part of the agreement - although it is of course "very, very significant", since having the lowest corporate tax rates in its neighborhood has been a cornerstone of Irish economic policy for decades.
The new rate will affect 1,556 companies in Ireland that employ some 500,000 people, including US tech giants like Apple, Google and Amazon.
Ireland is joining 140 countries that have agreed via the OECD to the levy of 15% on multinationals. It reached the deal by persuading the OECD to allow it to keep the 12.5% rate for smaller domestic companies with a turnover of less than €750MM. Donohoe added that he had been unsure the OECD would agree to the carve out - but securing Ireland's participation was critical to making the new policy work, since the idea is to de-incentivize multinationals from leaving the US.
Donohoe said the change would likely be permanent, and that the change would be "right for Ireland" (in exchange for agreeing to the minimum rate, the US intends to allow European countries to take a bigger piece of the overall corporate tax pie).
"I believe that change will be right for Ireland and I believe it is also right for Ireland to be playing a positive role in implementing what I believe will be an important agreement," he said in an interview, adding the deal provided "certainty and stability."
Asked if the new rate would remain forever, he said: "I can’t see in my lifetime this kind of circumstances developing again...15 will mean 15."
"We’re all depending on each other to be able to implement this collectively and comprehensively," Donohoe said. But he added: "I have enough confidence now that this is going to happen globally for me to believe that it’s appropriate that Ireland go into it now."
The agreement with Ireland was secured during a meeting in Paris. Details of the international framework have yet to be completed, including the amount that of the tax offset mentioned above. To entice countries to agree, the deal will impose new taxes on multinationals that must be paid in countries where they operate, but aren't necessarily based. This is known as the "Pillar One" of the deal.
The president of the Irish Tax Institute, Karen Frawley, said that rejecting the deal would make Ireland look like a "tax haven", which would have left it with a "damaged" reputation.
Per the FT, EU members Estonia and Hungary are among the remaining holdouts. For the deal to have any hope of succeeding, the EU needs to secure unanimous support from its 27 members, and then there are still other low-tax nations (including, for example, Singapore), that must be brought on as well.
Interestingly, polling shows 59% of Irish residents opposed increasing the corporate tax rate but Mark Redmond, CEO of the American Chamber of Commerce of Ireland "warmly welcomed" Ireland's decision.
"The revised agreement ensures essential predictability, stability and certainty for multinational employers," he said. US FDI in Ireland accounts for about 20% of private sector jobs.
The Irish government expects the higher minimum rate will actually lead to lower revenue, though the FT didn't go into detail on this. One reporter pointed out that the "headline rate" isn't that big of a deal for multinationals, anyway.
It's widely expected that the new global tax rate won't take effect until at least 2023.
You can read this article as it originally appears at Zero Hedge here.
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