Ireland will need to decide on the sensitive issue of its 12.5 per cent tax rate as the US may now set a “de facto”minimum tax rate for its companies operating here at a higher level, according to Pascal Saint-Amans, the OECD tax director.
The approach from the Biden administration in the US has reinvigorated the talks on global tax reform at the OECD, according to Mr Saint-Amans, who now sees G20 meetings in July and October as key staging points towards a potential agreement.
Talks on global tax reform under the direction of the OECD have been given a new impetus by proposals from Washington that it would set a minimum global rate of 21 per cent for US companies – and its support for a global minimum– as well as new proposals from the US in another key area.
The US moves are vital for Ireland, according to Mr Saint-Amans, and given the strong presence of US investment here this was in the first place a “bilateral issue” to be discussed between Ireland and America.
He said that the US was likely to set a rate above Ireland’s 12.5 per cent rate for its new global minimum on overseas earnings (the so-called GILTI rate), though it might not be as high as the 21 per cent rate proposed by the Biden administration.
He believes this tax will operate on a country-by-country basis, meaning it would apply directly to the earnings of US firms in each country they operated in – and thus set a de facto rate for US earnings in Ireland.
The context for any Irish decision on the 12.5 per cent rate would also depend on whether there was an agreement on a global recommended minimum at the OECD. Mr Saint-Amans said he believed there would be, but would not speculate on what rate might emerge.
Commentators have suggested agreement might be reached around 15-18 per cent, but this remains uncertain.
Big markets
Ireland could also lose corporate tax revenue from an agreement in the other part of the OECD talks, under which companies would pay some tax on sales, diverting revenue to big markets and away from smaller countries such as Ireland where the international headquarters of US companies are based.
Mr Saint-Amans said a new US proposal in this area targeted the “big winners” – the major companies who had made huge profits in recent times.
Ireland had profited from tax from these companies in recent years, he said, but “you need to stabilise the international tax system – the winner cannot take it all”.
Ireland, and some other small countries such as Singapore, had been “ smart” in setting up a low tax environment to attract investment, he said, although “Ireland has also pushed its luck with some very generous incentives”.
Mr Saint-Amans has previously criticised the extension of the controversial double Irish tax relief up to 2020 for companies already using it.
He said Ireland could be confident about its ability to continue to attract investment even if tax competition was much reduced in future years.
“ Ireland is not a tax haven, it is an investment hub,” he said, and was a key player in the OECD talks for this reason.
He said the presence of so many big US companies here gave the State a “massive competitive advantage”, adding: “You already have the business in Ireland”.
