Irish Finance Minister Paschal Donohue has warned that Ireland could lose up to a fifth of its corporate tax revenue under a proposal approved by G7 finance ministers on Saturday.
But he said such a revenue loss, of about 2 billion euros a year, was already built into the government’s economic assumptions.
Finance ministers from the Group of Seven major industrialized nations meeting in London said they would support a minimum global corporate tax rate of at least 15 per cent, and put in place measures to ensure taxes are paid in countries where companies do business.
Donohue, who was at the meeting in his capacity as Eurogroup chair of eurozone finance ministers, said his officials had already modeled the impact of the proposals for Ireland.
«This suggests that Ireland could lose up to a fifth of our total corporate tax revenue and that the potential loss of revenue is already used up in budgetary accounts over the medium term,» he told The Irish Times.
The proposals must be approved by the Organization for Economic Co-operation and Development (OECD) in the coming months before they can take effect. Donohue said he would continue to defend Ireland’s 12.5 percent corporate tax rate in negotiations with European Union member states and the United States, who met Treasury Secretary Janet Yellen on Saturday.
In my bilateral engagement with the Organization for Economic Cooperation and Development and with the Secretary of State [Janet] Yellen continued to advocate the case for legitimate tax competition within certain limits and the role of small and medium-sized economies in the deal that is yet to come. I will continue to raise this issue.»
Donohue expressed confidence that the multinationals would remain in Ireland despite any change in the tax rate. He noted that there was new foreign direct investment (FDI) in Ireland this year already despite the coronavirus pandemic.
“The tax environment that is being developed at the moment is one that multinational companies are assessing at the moment. The reason why I am so positive about the future of our country and our economy is twofold.
First, this is the longevity of the investment we have in Ireland. Much of the FDI in Ireland that we are referring to is an investment that has now been in Ireland for several decades. It is an integral part of the physical infrastructure of our country.
“Those who are responsible for this foreign direct investment, who are responsible for driving it, who are responsible for domestic investment in our country have always seen transparency from these previous Irish governments, and they have seen our long-term efforts predictable and clear about how we respond to change.”
The G7 ministers said the tax should be applied at a country-by-country level, to prevent multinational companies from shifting profits between countries to reduce their tax bills.
Organization for Economic Cooperation and Development
Talks at the Organization for Economic Co-operation and Development have been underway for some time in an effort to reach agreement on global tax reform.
The G7 deal will now be taken up at the G20 meeting in Venice in July, with the hope of reaching agreement on the details by the fall.
«The chances of a global deal have increased dramatically,» EU Commissioner for Economics Paolo Gentiloni said after the G7 agreement was announced in London.
He added that a global agreement could now be reached in July, and the next step would be to win the support of the broader G20 and other countries participating in the OECD tax talks.
«Today, in London, we have taken a major step towards an unprecedented global agreement on corporate tax reform,» he said.
This means that G7 ministers support the two main arms – or pillars – of the OECD talks, making a deal look likely over the summer, even if many important details are not agreed upon.
Ministers also agreed to move towards having companies announce their environmental impact in a more standard way so that investors can more easily decide whether to fund them.
Rich countries have struggled for years to agree on a way to raise more revenue from large multinationals like Google, Amazon and Facebook, which often turn a profit in jurisdictions where they pay little or no tax.
The administration of US President Joe Biden has given the stalled talks a new impetus by proposing a minimum global corporate tax rate of 15 per cent, above the level in countries such as Ireland but below the lowest level in the Group of Seven. Additional reporting by Reuters
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