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

DUBLIN – Ireland’s low tax rate comes into the spotlight again as US President Joe Biden tries to revamp the global tax landscape.

The country’s rate of 12.5% ​​was a key feature of its ability to attract dozens of large companies, mostly American technology and pharmaceutical companies, to its shores, which often created many jobs.

All the while, Ireland’s tax system has drawn a lot of anger, especially in the 13 billion euro Apple tax battle with the European Commission.

Biden’s “Made in America” ​​plan, which proposes a global minimum tax rate, has rekindled flames, while Treasury Secretary Janet Yellen has said the “race to the bottom” over corporate tax rates should end.

Consensus on taxation is a debate that has fueled for years, namely through the negotiations at the OECD on a global minimum tax rate and the various efforts of national governments to impose digital taxes.

Alex Cobham, an economist and CEO of the tax group Advocate Group Tax Justice Network, told CNBC that although Biden’s proposals did not put forward anything that had not been proposed before, this time there was a greater tension behind it.

“We are very positive about what the Biden government has done, in part just as much for the big story shift as for the comprehensive policy,” he said.

“There was nothing new, but what we understand is that the government ended up with the media very hard and they said, ‘This is it, this is the big thing.’

Any changes to the corporate tax landscape will have an effect on Ireland, which has stood at its 12.5% ​​rate for years. Tax receipts for companies last year were 11.8 billion euros ($ 14.1 billion).

“We are constructively engaged in these discussions and will carefully consider all proposals and note that political discussions on these issues have not yet taken place with the 139 countries involved in this process,” said a spokesman for the finance department. Ireland said.

There are two aspects of Biden’s strategy: what he can implement at home and how he can influence change internationally by consensus.

It plans to increase the corporate tax rate in the US to 28% in order to finance its ambitious $ 2 billion infrastructure scheme.

Meanwhile, reaching an agreement on a global minimum tax rate could help prevent US taxes from being interrupted by lower-rate jurisdictions such as Ireland.

“The piece that is going to have the most impact on Ireland is the proposals to strengthen the idea of ​​a global minimum tax, that each country will somehow charge about the same percentages on the businesses that operate in their jurisdictions. Brian Keegan , director of public policy at Chartered Accountants Ireland, told CNBC.

“This is one aspect of the plan that the US alone cannot achieve.”

However, the US is not alone in its ambitions, with French Finance Minister Bruno Le Maire expressing his support.

But Biden does not have time on his side, as any changes in the 2022 midterm elections could boost his ability to push through measures at home.

“Ultimately, all tax change is not tax change, but political change, which also indicates the urgency of the Biden tax plan,” Keegan said.

On the international scene, consensus could be reached relatively quickly.

“The OECD process has been going on for at least two years, and a lot of technical work has been done at OECD level to make it happen,” Keegan said. “A lot of the machinery that can make the minimum system work has already been worked out.”

“I think we can say in about 18 months that you will have that global minimum tax effective in legislation in the US, across the EU, and probably a little bit wider than that,” Cobham added.

Even with an increasing tax rate, it is unlikely that large technology companies such as Facebook and Google, which have established large employee base and physical infrastructure in Ireland, will pack their bags and leave.

“It is clear that (Ireland) is a place with real economic activity. It is not that there are no multinationals with jobs and sales in Ireland, but that the profits declared are completely disproportionate,” Cobham said.

“If it goes that way, you lose a certain amount of tax revenue, but it’s compensated to some extent because you’re effectively forced to put a higher rate on the real thing. The income may not be that big.”

Where new challenges for Ireland may emerge is to attract foreign direct investment in the future, in a world with more equal playing field for taxation.

While the winds of change are blowing, Ireland will have to rely more heavily on its other characteristics: its capable workforce, that it is an English-speaking EU country, and its proximity between the US and Europe which is connected by strong travel links.

“There could be a very expensive, albeit relatively short, adjustment period in which the current Irish business model does not work and there is not a new one,” Cobham said. “If you are the Irish government, and if you have not already done so, they should really focus on that for the next two months and say ‘what are we going to do in a year or two?'”