A global deal to set a minimum corporate tax rate of 15% lifted its last major hurdle on Thursday after Ireland, a low-tax country that is the European headquarters of some of America’s biggest tech companies, said she would join the redesign effort.
The Irish policy shift precedes a Friday meeting of 140 governments and jurisdictions that have been negotiating for years a way to tax international businesses to limit tax evasion and distribute tax revenue in a way they deem more fair. The group seems likely to give its approval to a final agreement that would aim for implementation in 2023.
If the necessary changes to domestic law and international treaties are made, it would be the most radical change in international taxation in a century. In addition to setting a minimum rate that would likely see a number of the world’s largest companies pay more taxes, existing tax revenues would be distributed among governments so that countries where companies have customers get more income. This reverses a long-held principle of international taxation, that profits are taxed where value is generated, which was traditionally where companies had a physical presence.
Although small, Ireland plays a disproportionate role in the strategies used by businesses in the United States and elsewhere to reduce their global tax bill. Most of America’s biggest tech companies have their European headquarters in Ireland, and the country has attracted America’s biggest pharmaceutical companies as well.
Ireland’s move to raise its corporate tax rate by 12.5% after the deal is implemented is a concession to key allies, especially the United States
“I believe that the current situation is balanced and represents a fair compromise, reflecting the interests of the many countries concerned,” said Paschal Donohoe, Irish Minister for Finance.
Tax negotiations date back to 2013, when governments began to look for ways to limit tax evasion in response to the new generation of digital giants who didn’t need to be close to consumers to sell to them, and can register their intellectual property, from which their profits are derived, almost anywhere. Talks stalled towards the end of Donald Trump’s presidency, but were revived earlier this year when US Treasury Secretary Janet Yellen made setting a global minimum tax rate a priority and raised proposed a simpler way to distribute existing tax revenue which quickly gained European support.
As late as Wednesday, Ms Yellen urged her Estonian counterpart, one of the few other holdouts, to back the deal in a phone conversation.
The broad political agreement expected on Friday is an important step forward, but not the final step. Implementation will be a tough dance, as the United States looks to see if European countries remove digital taxes as promised and the rest of the world sees if the United States Congress can update its existing minimum tax and then pass the subsequent changes in international rules on where income is taxed.
And crucial details remain to be decided. Among them: how to prevent countries from circumventing restrictions against low-tax regimes by offering non-tax subsidies to businesses.
Big tech companies have backed overhauling tax rules even if it means paying more taxes, in large part because a deal would help remove the threat of a patchwork of overlapping national taxes like those already in existence in Canada. France and the United Kingdom, and which came on the verge of triggering a new trade war between the United States and Europe.
Companies that depend on intellectual property can concentrate their profits in Ireland rather than the high tax countries where their consumers live, which has been a source of frustration for other governments. Those benefits have narrowed and U.S. policymakers are watching closely what benefits, if any, will remain for companies that make their profits or have their headquarters out of the country.
Persuading Ireland to sign the global deal is a victory for Ms Yellen, who has pushed for a global minimum tax rate as part of the Biden administration’s plans to increase corporate taxes. The more other countries agree to increase their tax rates, the less impact US tax increases will have on the location of businesses.
“We are on the road to generational achievement by creating a global minimum tax, which would create a level playing field so that jobs and investments can thrive in the United States,” said Alexandra LaManna, spokesperson for the United States. US Treasury.
The Irish government has won what it sees as a key concession. In the July framework agreement, the minimum tax was “at least 15%”, implying that it could increase further. The Irish government has said that “at least” has now been removed.
This marks a minor setback for the United States, which had hoped to clear the way for higher rates in the future and argued for a minimum rate of 21%, but resistance from Democrats in Congress was already making an American minimum rate. 21% less likely. . The United States is not publicly discussing the details as international talks continue.
The path to an expanded minimum tax in Congress remains uncertain. House Democrats have proposed a minimum rate of 16.6% on foreign income for U.S. businesses, but with several technical details that are easier on businesses than the current rules. Business groups and some Democrats have argued that the United States should be cautious about raising its minimum tax before other countries adopt theirs.
These international tax provisions are shrouded in the larger legislative struggle over President Biden’s agenda. Some Democrats have proposed a 10-year, $ 3.5 trillion plan, but are now scaling back their targets to accommodate their more conservative members.
Irish officials expect multinational companies to continue to use Ireland as a base for their operations as taxes will remain low nonetheless.
“I am convinced that Ireland will remain competitive in the future, we will remain an attractive location,” said Mr Donohoe.
Ireland’s corporate tax rate has remained at 12.5% since 2003, evolving from an earlier system of tax breaks designed to attract foreign businesses to what was then still a relatively poor country in the West from Europe.
He argued that low taxes were needed to compensate for the drawbacks of his small size. These drawbacks have been mitigated by information technology, with many of America’s largest companies now able to sell their services across Europe and beyond from their Irish base.
Over the years, more and more multinationals have been drawn to a large pool of skilled workers and labor, as well as a legal framework and language familiar to American businesses.
The Irish government’s decision to join the global deal is not popular with voters, who fear it will make the country less attractive to American companies that have provided many well-paying jobs. Driven by exports from US tech and pharmaceutical companies, the Irish economy grew 5.9% last year, while other wealthy countries experienced contractions. The US economy contracted by 3.4%.
A recent Irish Times poll found that 59% of those polled wanted to keep the tax rate at 12.5%, with just 26% in favor of participating in the global deal.
Ireland and taxation
Learn more about how low corporate tax rates have transformed the country, selected by the editors.
According to the American Chamber of Commerce in Ireland, more than 800 American companies are established in the country, directly employing 180,000 people and helping to maintain 144,000 additional jobs. This presence has grown rapidly over the past decade, with a 44% increase in direct employment.
Mark Redmond, chief executive of the House, said Ireland is unlikely to suffer a loss of US investment as a result of its move, and that US companies appreciate the role of the Irish government in ensuring that the rate of minimum taxation cannot be increased in the coming years. .
“The reaction from boards of directors across the United States is that Ireland has done a good job on this deal,” he said. “Ireland’s influence on the process has been very positive.
For Kieran McQuinn, a research professor at the Irish Institute for Economic and Social Research, the potential impact of tax change on the country’s economy could be significant.
But he noted that there has been little evidence of a decline in U.S. investment in Ireland even as the likelihood of a global minimum tax rate has risen this year, and U.S. businesses will be reassured that it does. it is not the government’s intention to collect more revenue.
“The Irish authorities are responding to international pressure,” he said. “It would be a different question if it were a clear change in domestic politics. I think this is clearly not the case. The Irish authorities are strongly cajoled.
Similar concerns about their ability to attract foreign investment are at the root of Estonia and Hungary’s reluctance to sign the deal. They are also looking to change the July deal to protect their savings. Kenya, Nigeria and Sri Lanka have also refused to sign the July accord.
Write to Paul Hannon at [email protected] and Richard Rubin at [email protected]
p style= »position: absolute;z-index:-1;top:0;left:-15000px; »>Copyright © 2021 Dow Jones & Company, Inc. Tous droits réservés. 87990cbe856818d5eddac44c7b1cdeb8