Thank goodness for corporation tax. There may be doubts about the hit it will take from global tax reform, but for the moment it is the gift which keeps on giving. Corporate tax receipts are running €250 million ahead of last year – itself a strong performance. Add in buoyancy in income tax and Peter Vale, tax partner in Grant Thornton, estimates that total tax revenue this year might be as much as €3 billion over forecast.
But what of the future? While this week’s drama surrounds the OECD talks, the key thing to watch now is what happens in the US Congress. The global reform plan is being pushed by the US, with the Biden administration twisting arms, hard. This makes Ireland’s decision not to sign up at this stage a significant political move.
But while the US is leading the charge internationally, it remains unclear whether it can deliver at home. Finance minister Paschal Donohoe does not want to sign up to an OECD deal, only to see the US – the key investor in Ireland – go in another direction, because the administration has to compromise with Congress.
If Ireland's rate is to change – and it might – then Donohoe will want this to be a once-off move, not undermined by whatever happens next in the US. Ireland holding fire to see what happens in the US makes strategic sense for now, according to Gerard Brady, Ibec chief economist in a comment on this week's developments, but if the US Congress signs up more or less to the OECD deal, then he believes the Republic is likely to as well.
The congressional picture is unclear, with significant Republican opposition to parts of the deal. The key decisions are likely to come in September – a tight timeline as the OECD deadline is October. Ireland cannot block an OECD deal – but it could, like any other EU country, probably block an EU directive to mandate a new minimum 15 per cent rate. That is why there will be strong attempts to get Ireland “ on board”. A vital few weeks of economic diplomacy lie ahead.
