It now appears likely that a revised OECD tax reform package will be released which removes the reference to a global minimum tax of “at least” 15% and replaces it with a minimum tax rate of 15%.
If confirmed, it represents a positive development for Ireland and a vindication of the Minister’s decision to refuse to sign the original document, which left open the very real possibility of “rate creep”.
It would appear very likely that Ireland will sign up to the revised deal, paving the way for a new higher rate of 15% in Ireland, the first change since 2003.
While a global minimum rate higher than our 12.5% rate is not good news for Ireland, the fact that we now have the certainty of a fixed 15% rate can be considered a victory. Lingering uncertainty would have been damaging and potentially seen some foreign investment projects diverted elsewhere.
It is quite likely that the 15% rate will only apply to companies with global turnover in excess of €750m, meaning that the vast majority of companies in Ireland, including many foreign owned companies, will continue to pay tax at the 12.5% rate.
It is worth noting that the new global minimum rate, known as Pillar Two, is only one half of the reform package. The other element, Pillar One, which Ireland is not objecting to, will see a portion of taxable profits diverted to market jurisdictions.
The impact of both Pillars will be to reduce the relative attractiveness of Ireland as a location for foreign investment. However, it’s unlikely to trigger the departure of significant investment already located here, with many non-tax factors, including access to EU markets, also critical for multinational groups here. For both new and existing investment, Ireland will continue to offer one of the lowest headline corporate tax rates, with a suite of other reliefs which make it a compelling location in which to do business.
Arguably of greater importance to Ireland will be developments in the US, in particular any US changes that apply a tax rate higher than 15% to the overseas profits of US groups. Such a change would represent a greater threat to both new and existing investment here than the OECD reform package. While the latest proposed US changes face many challenges before they become law, it’s a process that could have significant implications for Ireland.
The doomsday scenario is an exodus of foreign investment from Ireland, which would not just see corporate tax receipts plummet but would also see all other tax heads suffer, with income tax and VAT in particular likely to be significantly impacted by any shift in investment away from these shores. While the prevention of such a scenario is to a great extent outside our control, it is imperative that Ireland continues to do all within its control to ensure Ireland remains as competitive and business friendly a jurisdiction in which to do business.