Varadkar says Ireland wants to be ‘in the tent’ on OECD global tax deal

International tax updates

Ireland’s deputy prime minister has said his country does not wish to be seen as a tax haven and would prefer to be “in the tent” as negotiators in Paris seek a deal to establish a global minimum corporate tax rate of 15 per cent.

Leo Varadkar has outlined a plan by Dublin in response to the planned OECD move to raise the corporate tax on multinationals from 12.5 per cent to 15 per cent. Varadkar stressed that most Irish companies would still benefit from the lower rate.

If the Irish drop their objections it would clear a significant hurdle to get to a global deal, which now has almost unanimous backing. On Wednesday, Janet Yellen, the US treasury secretary, urged Paschal Donohoe, Ireland’s finance minister, in a phone call to take this “once in a generation opportunity.”

The 140 countries involved in the deal will meet on October 8 and those close to the talks say they expect an outcome very similar to the deal agreed in July, with strong backing from Washington.

“The deal will be very similar to what has been decided. It just needs to be finalised,” said one person close to the talks.

Ireland’s decision to hold out against a global minimum corporate tax rate had become difficult to sustain given that the Biden administration has begun steps to introduce the relevant legislation through Congress.

The bill proposes to raise the rate of tax levied on profits made by US multinationals located in countries where domestic tax levels are low. As most of the multinationals paying low tax rates in Ireland are US companies, if Congress approves the legislation Ireland would lose its tax advantage.

This appears to have concentrated minds and Varadkar proposed a new hybrid Irish corporate tax system with a 12.5 per cent charge on domestic companies and companies with annual turnover below €750m.

“Any agreement that we may or may not come to, won’t impact the average Irish business. It won’t impact even large businesses or mid-caps. The 12.5 per cent rate will stay in place for them,” Varadkar said. He added: “We can’t say at this stage whether we will sign up to an international agreement or not.”

Ireland’s department of finance said on Wednesday the country was “broadly supportive” of the agreement but still held a “strong reservation” about a global minimum corporate tax rate of “at least 15 per cent”.

“Ireland wants to be part of the deal but at this stage there is a lack of clarity on what is in the deal,” it told the Financial Times.

Still, with the OECD talks likely to settle on a global minimum rate of 15 per cent, rather than the original wording of “at least 15 per cent”, Dublin would be able to argue it softened the effect at home.

Other countries have been signing up to the OECD deal quietly over the summer. Togo became the 134th country to come on board out of 140 countries involved in the talks.

Despite the near unanimity, some discontent remains. Earlier this week the G24 group of developing countries wrote to the OECD arguing that the revenue that poorer countries will receive from the deal would be “suboptimal” and would “not be sustainable”.

Areas still to be finalised include the dispute-resolution mechanism and specific exemptions for countries that, while not tax havens, attract companies via various tax incentives, often for manufacturing plant and machinery.

“There’s been serious resistance from eastern Europe and the tax havens, and China is also concerned,” the person close to the talks said, adding that countries were still haggling over the exemptions for “real economic activities with substance”.

EU holdout Hungary was one of the countries most concerned about the size of the carve-out.

Other parts of the OECD deal, relating to where multinationals pay tax, are also still to be finalised. As yet, no agreement has been reached on the exact percentage of profits that the largest multinationals will have to allocate for taxation based on where sales are actually made.

Should countries finalise a deal, the OECD will organise a multilateral convention to update international tax treaties in the first quarter of next year. The new regime would then come into force in 2023.

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