Ireland positions itself as counterpoint to US in debate over global minimum tax

By Doug Connolly, MNE Tax

Irish Finance Minister Paschal Donohoe today confirmed that Ireland would resist the push for a global minimum tax to the extent that it would infringe on the country’s 12.5 percent corporate tax rate. In comments made during an Ireland Department of Finance international tax seminar, Donohue also expressed Ireland’s broader commitment to international cooperation to address tax avoidance.

The Minister’s comments, reflecting his previously announced stance on the issue, position Ireland as a counterpoint to the US’s increasing push under the Biden Administration for agreement on a global minimum tax with the initial suggestion of a 21 percent rate.

Donohoe acknowledged the current international goal to reach agreement by mid-2021 on two major OECD tax initiatives: Pillar 1 regarding the allocation of more taxing rights to market jurisdictions, and Pillar 2 regarding the implementation of a global minimum effective tax rate. He expressed his support for Pillar 1, while reiterating his resistance to the Pillar 2 minimum tax.

An agreement on international tax rules should address the needs of all 139 countries represented in the OECD Inclusive Framework, he argued, both small and large countries, and developing and developed countries. To this end, he suggested countries first need to agree on the principle of what they are trying to achieve.

Donohoe expressed concerns that the global minimum tax push would be used, not to address aggressive tax planning, but to remove one of the few competitive advantages many small countries benefit from. He contended that tax rates are vital to keeping smaller countries like Ireland competitive relative to larger countries that benefit from “advantages of scale, location, resources, [and] industrial heritage.”

There can be boundaries to what is considered fair tax competition, Donohoe suggested, but Ireland’s 12.5 percent corporate tax rate, he believes, is a fair rate within a healthy range of tax competition. He suggested that an international tax agreement that works for all countries involved would be one that allows for some range of tax competition rather than aiming for a homogenization of rates.

Donohoe further emphasized that countries around the world, including Ireland, have come a long way in recent years in addressing tax avoidance through the OECD base erosion and profit shifting (BEPS) project. He said Ireland has been fully committed to the process through unilateral updates to its tax rules to reflect BEPS recommendations, as well as its agreement with EU anti-tax avoidance directives and its ratification of the BEPS multilateral instrument.