Minister for Finance Paschal Donohoe has warned of the risk posed to the State if an OECD-brokered deal on multinational tax fails to get across the line. A global deal to ensure big companies pay a minimum tax rate of 15 per cent was agreed under the auspices of the Organisation for Economic Co-operation and Development (OECD) last year. However, it has run into difficulties since then.
EU finance ministers are unable to adopt a draft directive to implement the OECD’s pillar two plan because of objections from Hungary, while proposed US legislation waters down the original agreement amid growing scepticism from Republicans. The OECD’s tax chief Pascal Saint-Amans, who co-ordinated efforts to reach agreement for a minimum rate, has meanwhile announced his departure from the Paris-based organisation.
“If this pillar doesn’t work out, we’re back to square one and if we go back to square one we’ll be dealing with a whole other set of risks and problems,” Mr Donohoe told a pre-budget event hosted by consultancy firm PwC.
“And those risks and those problems for small open economies that depend on tax co-operation would be significant,” he said. Mr Donohoe said he did not expect to find himself in the position of making the case for the deal but the alternative posed a bigger threat to Ireland’s industrial model.
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The Republic initially resisted signing up to the deal amid fears it would damage inward investment here with Mr Donohoe insisting small countries should be able to compete on tax. However, the Government later jumped on board in the wake of assurances that the agreement would not lead to further increases in the agreed minimum rate.
Mr Donohoe said he remained confident that moves towards a new rate were progressing, while noting “it was an extraordinarily complex global project”. “The bottom line is, they [the EU and the US] are moving ahead with a higher rate,” he said.
A report last week from the Department of Finance warned that two of the State’s largest revenue streams – income tax and corporate tax – were now highly concentrated around a narrow base of employees and a handful of big companies, creating a “potential vulnerability” at the heart of the tax system here. It noted that approximately 500,000 taxpayers and just 10 firms accounted for more than a third of the €68.4 billion in tax generated last year, creating the potential for a shock to the public finances if there was a big change in the multinational landscape.
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Mr Donohoe said the department’s report reflected two things: the strength of the two tax heads (income and corporate) but also the concentration risk inherent in these taxes.
“If the internationally traded parts of our economy are creating strong receipts (corporate and personal tax) . . . the risk of all of that is if the trading environment shifts that in turn will have an effect on those tax receipts here,” he said.
The Minister refused to be drawn on the measures likely to be rolled out in the budget later this month but said cost-of-living measures would be prioritised. Government sources have suggested that pressure to support people with the cost of living could push a package of once-off measures – to be announced in parallel with the budget – as high as €2 billion.
