The extent of the US push for an agreement on a global minimum corporate tax rate is becoming clear, with part of the plan posing a threat to Irish companies with major US operations. They could face a significantly higher tax bill related to their US operations if the Republic does not agree to apply an agreed global minimum rate.
The US is pushing for agreement at the Organisation for Economic Co-operation and Development (OECD) talks on a global minimum corporate tax rate, with G7 finance ministers agreeing that it should be "at least 15 per cent". Crucial talks will take place among the countries participating in the OECD process to see if a political agreement can be reached over the summer.
The Minister for Finance, Paschal Donohoe, has said he believes any agreement should leave room for Ireland's 12.5 per cent rate. However, more details are emerging of US proposals to pressurise countries to adopt a global minimum via changes in US tax rules. These are centred on a so-called Shield proposal – which stands for Stopping Harmful Inversions and ending Low-Tax Developments. This would target companies from countries that do not adopt the minimum rate and which themselves have US investments.
For example, under the proposal, if Ireland left its corporate tax rate at 12.5 per cent and the agreed global minimum was higher, then companies with Irish headquarters with US operations – such as some of the big dairy companies – would not be able to take normal tax deductions on profits sent back to their headquarters. The impact is intended to impose a tax at the US corporate rate on profits made by these companies in the US, to put pressure on other countries to adopt the global minimum.
Increase
Currently the US rate is 21 per cent, but the Biden administration wants to increase it to 28 per cent. These proposals – and the Shield plan – all have to be negotiated with the US Congress, with significant opposition to large parts of the president’s plan making the outcome unpredictable. There is speculation that the agreed corporate tax rate will be lower than 28 per cent, but whatever rate is finalised will be well above the current Irish 12.5 per cent rate.
The US administration has also proposed a 21 per cent minimum tax rate on the international earnings of US companies, in another measure designed to put pressure on other countries to increase their rates and discourage companies from shifting profits to low-tax jurisdictions. It is also likely to seek to get OECD agreement on measures to push countries to adopt a new minimum.
After the recent G7 meetings, US treasury secretary Janet Yellen referred to aspects of the plan which would put pressure on countries to adopt a new agreed minimum rate.
