Biden’s tax reform puts the Irish corporate rate in the spotlight

DUBLIN – Ireland’s low corporate tax rate is back in the spotlight as US President Joe Biden seeks to revamp the global tax landscape.

The 12.5% ​​rate of the country was a key feature of its ability to lure dozens of large corporations, mostly US technology and pharmaceutical companies, to the coast, often creating many jobs.

All the while, the Irish tax system has sparked a lot of anger, particularly in Apple’s 13 billion euro tax disputes with the European Commission.

Biden’s “Made in America” ​​plan, which proposes a global minimum tax rate, has rekindled the flame, while Treasury Secretary Janet Yellen said the “race to the bottom” on corporate tax rates must end.

Consensus on taxation is a debate that has been buzzing for years, namely through negotiations at the OECD on a global minimum corporate tax rate and the various efforts of national governments to introduce digital taxes.

Alex Cobham, an economist and the chief executive of advocacy group the Tax Justice Network, told CNBC that while Biden’s proposals have not presented anything that has not been proposed before, this time there is greater momentum behind them.

“We are very positive about what the Biden administration has done, both for the great narrative shift and for the detailed policy,” he said.

“There was nothing new there, but we understand what happened is that the government got so hard with the media and they said, this is it, this is the big thing.”

Any change in the corporate tax landscape will affect Ireland, which has been firmly committed to its 12.5% ​​rate for years. Last year, corporate tax income was 11.8 billion euros ($ 14.1 billion).

“We participate constructively in these discussions and will carefully consider all proposals, noting that no political level discussions on these issues have yet taken place with the 139 countries involved in this process,” said a spokesperson for the Irish Treasury Department.

There are two aspects of Biden’s strategy: what he can implement at home and how he can influence international change through consensus.

He plans to raise the US corporate tax rate to 28% in order to fund his ambitious $ 2 trillion infrastructure plan.

Meanwhile, reaching an agreement on a global minimum tax rate would help prevent US taxation from being undermined by lower-rate jurisdictions such as Ireland.

“ The piece that will have the most impact on Ireland is the proposals to reinforce the idea of ​​a global minimum tax, that in some way every country would in fact levy roughly the same kind of rates on the companies operating in their jurisdictions are, ”Brian Keegan, director of public policy at Chartered Accountants Ireland, told CNBC.

“That is one aspect of the plan that the US cannot achieve on its own.”

However, the US is not alone in its ambitions, with French Finance Minister Bruno Le Maire voicing his support.

But Biden has no time on his side, as any changes in the 2022 midterm elections could hamper his ability to push through at home.

“Ultimately, all tax change is not a tax change, it is a political change, which also highlights the urgency of the Biden tax plan,” Keegan said.

Consensus could be reached relatively quickly on the international stage.

“The OECD process has been going on for at least two years, so a lot of technical work has already been done at the OECD level to make this happen,” said Keegan. “Many of the machines that would make the system work minimally have already been worked out.”

“I think in about 18 months we can say that you will have that global minimum tax effectively in the US, across the EU and probably a lot wider,” added Cobham.

Even with a rising tax rate, big tech companies like Facebook and Google, which have a large workforce and physical infrastructure in Ireland, are unlikely to pack and leave.

“It is clear that (Ireland) is a place of real economic activity, it is not that there are no multinational corporations with employment and sales in Ireland, but the profit reported is completely disproportionate,” said Cobham.

“If so, you lose a certain amount of tax revenue, but that is offset to some extent because you are effectively forced to pay a higher rate for the things that are real. The revenues may not be that great. “

Ireland may face new challenges in attracting new foreign direct investment in the future, in a world with a more level playing field in taxation.

With the winds of change, Ireland will have to rely more heavily on its other attributes: its skilled workforce, being an English-speaking EU country, and its proximity between the US and Europe, linked by strong travel links.

“There could be a fairly expensive, albeit relatively short, adjustment period where the current Irish business model is not working and there is no new one,” said Cobham. “If you’re the Irish government, and if you haven’t already, they really need to focus on this for the next two months and say ‘what are we going to do in a year or two from now?'”