On paper, the Irish economy, with its low tax rates, has a lot to lose from the global deal on multinational taxation. But in fact, according to experts interviewed by AFP, it may not be damaged much.
On Thursday, 130 countries ended a “historic” agreement on taxing multinationals that includes a minimum tax on profits of at least 15%. Ireland has not signed this text promoted by the Organization for Economic Co-operation and Development (OECD).
This body considers that the agreement will generate an additional $150,000 million in tax collection, adaptation of the assessment system to the modern economy, and strengthening public finances that have been decimated by the coronavirus crisis.
Irish Finance Minister Pascal Donohoe said he “jointly supported” the agreement, but had “reservations” that led him not to stick to the agreement.
Since 2003, Ireland has maintained a 12.5% corporate tax that has allowed it to host the European headquarters of a number of US companies such as tech and pharmaceutical giants, whose profits have skyrocketed during the pandemic.
– A ‘more sustainable’ model –
In the eyes of some analysts, its economy is highly dependent on multinational corporations such as Facebook, Apple and Google.
In fact, only ten companies generated 51% of the corporate tax collected in Ireland in 2020.
The Treasury expects a loss of €2 billion annually ($2.373 billion) starting in 2025 if this lower rate comes into effect.
According to researchers from Oxford Economics, the OECD reform will make Ireland one of the most indebted countries, while battling the shocks of its neighbor the United Kingdom’s exit from the European Union.
But there is room for maneuver for Ireland, as evidenced by the fact that financial services have been left out of the deal, which is something in the UK’s favour.
“Each country can use its bargaining power to obtain exemptions to the pillars of its economy,” says Lucy Gadian, professor of economics from the University of Warwick. “Ireland is trying to maximize its bargaining power through resilience and pressure at the European level.”
He added that “the tax haven model in Ireland has been very beneficial to him, but perhaps he should move towards a more sustainable economic model.”
– Exaggerated concern –
According to John Fitzgerald of Trinity College Dublin and a former Central Bank of Ireland commissioner, his country’s concerns are overblown.
He “sees no reason” not to embrace the reform “if the United States implements it,” though he cautioned that its president, Joe Biden, has not yet convinced opposition Republicans in Congress.
“No company can profit from leaving Ireland if the 15% are everywhere, so it’s better to stay in Ireland and pay,” Fitzgerald tells AFP.
Rather, he points out, “if the United States applied the rule, Ireland might find itself with more income.”
Low taxes aren’t the only attraction in Ireland, which also has a well-educated, English-speaking population and a solid infrastructure.
“The jobs are going to stay here because there’s the skills, the capital investments, the physical capital, and that can’t be easily changed. I don’t see any long-term implications for the Irish model,” Fitzgerald adds.
In addition, the road to implementation of the agreement is long: negotiations remain pending, including a meeting of G-20 finance ministers in Italy this month, and policy discussions in the US Congress and within the European Union.
“We won’t be able to assess the impact until we have the technical details,” says Emer Mulligan of the JE Cairnes School of Business at the National University of Ireland.
© 2021 AFP