Ireland has become one of over 130 countries to sign up for a new Organisation for Economic Cooperation and Development (OECD) framework for international tax reform. The move will mark the end of Ireland’s 12.5% corporation tax rate as countries agree to implement a minimum rate of 15%.
The agreement is intended to come into force in 2023 and will also see the reallocation of some taxing rights for large multinationals from their base countries to the countries where the profits are earned.
Ireland had previously declined to sign up for an earlier version of the agreement and had been strongly opposed to any move away from the current rate of 12.5%, which has been a cornerstone of Ireland’s economic policy for nearly 20 years.
The new 15% rate will apply to companies with a worldwide turnover above €750 million, with only the shipping industry exempt.
According to Minister for Finance Paschal Donoghue, the 15pc minimum rate will affect 56 Irish firms employing around 100,000 people and 1,500 foreign-owned multinationals with around 400,000 staff. It is understood that around 160,000 companies that make less than €750 million in worldwide revenue will be exempt from the new higher rate.
Ireland’s hold out did manage to bring about some concessions on the part of the OECD. There were some noticeable changes in the version of the agreement signed by Ireland, with the inclusion of the exemptions for ‘small businesses and most importantly the removal of “at least” from the wording of the agreement. The latter change coupled with assurances from the EU that the rate would not be increased further down the line was key in Ireland’s eventual signing of the agreement.
The exact formula for working out how much companies will owe across the various jurisdictions is one detail that still needs to be finalized. However, it is understood that this aspect of the agreement will hurt Ireland’s corporation tax intake.
The Government believes that the entire deal will cost up to €2bn a year in tax revenues, a fifth of the current tax take. However, it is expected that this will at least be somewhat offset by increased receipts from the higher rate of tax.
In reality, it remains to be seen how the end of Ireland’s signature 12.5% corporation tax regime will affect tax receipts and the economy as a whole. However, the feared mass exodus of multi-national companies is unlikely to materialise. One-third of US multinationals operating in Ireland have been here for more than 20 years.
During the past week, the chief executive of the American Chamber of Commerce Ireland welcomed the new OECD agreement, saying that it brings certainty to Ireland’s tax regime going forward and that Ireland remains an attractive location for investment
Mark O’Rourke – Business Correspondent
