Q&A: What is a global minimum tax and will it cost Ireland's economy?

The G7 (Group of Seven) nations has struck a deal which could create the basis for a worldwide minimum corporate tax rate of 15%. Corporation tax is the levy paid by businesses into the exchequer. Ireland’s rate, which successive governments have zealously defended, is 12.5%. 

That rate has not made us particularly popular amongst many of our fellow EU nations to put it mildly as it is seen as creating an unfair advantage in terms of attracting foreign direct investment (FDI) from multinational companies. The G7 has also agreed to force multinationals to pay tax in all the countries in which they operate, which would be a serious game-changer if it comes to pass.

So companies here only pay 12.5%?

In theory, yes. In practice most companies — particularly the enormous multinationals such as Facebook, Amazon, Google, and Microsoft who are based here — pay a whole lot less, using whatever tax laws or residency declarations are available to them. 

Last week, for example, it emerged that Microsoft’s Irish arm paid zero corporation tax on profits of €259m in the year to June 2020 because it is resident for tax purposes in Bermuda. Regardless, Ireland's 12.5% level is quite problematic on a diplomatic level, not least because US president Joe Biden has made little secret of the fact he considers Ireland a tax haven. That pressure from the US is where today’s deal can be seen to be coming from. The deal itself was actually agreed in principle as far back as eight years ago.

Would this reduction apply across the board?

No, it would be specific to multinationals operating outside their home countries. The Government would still be free to charge whatever rate it wished. However, companies would be liable for top-up taxes within their home nation.

Is this definitely going to happen? Imminently?

Not at all, but it is a definite statement of intent. First things first, the deal will be considered by the larger G20 body of developing nations next month to see if they’re on board with it. The details of any resultant deal would take a great deal of hammering out — more than 130 countries will need to give their buy-in to this. It would also need to pass both houses of the US Congress. There is a definite direction of travel now, however.

What is the Government saying?

Finance minister Paschal Donohoe — who also doubles as president of the Eurogroup, which is wholly in favour of corporate tax harmonisation, and who is present at the G7 in London in that capacity — tweeted that it is “in everyone’s interest to achieve a sustainable, ambitious and equitable agreement on the international tax architecture”. 

He said he now looks forward to engaging in discussions re the proposed new rate with the OECD. He said that any agreement “will have to meet the needs of small and large countries”. 

Ireland is unlikely to give up its corporate tax rate without a fight, as the appeals over the €13.5 billion Apple Tax will have shown. But eventually the will of the many may overcome the desires of the few.