Could Ireland profit from first phase of corporate tax reform?

The future of the Organisation for Economic Co-operation and Development (OECD) global tax reform deal hangs in the balance, with doubts about the ability to actually implement what was agreed.

In the US, President Joe Biden’s tax reform plan — including provisions to implement the new 15 per cent minimum rate on the overseas earnings of US companies — is in deep trouble. In the EU, Hungary has blocked agreement on the introduction of the 15 per cent rate.

One intriguing possibility has emerged — it is that the Irish exchequer could gain in the short term, if Europe can agree to implement the 15 per cent corporate tax rate. But the other part of the OECD deal — which would cost the State — does not go ahead for now.

The part which would cost the State is the agreement that big digital players will in future pay some corporate tax in markets where they do most of their business. In effect, this moves some tax revenue away from the State to big countries like Germany, France and Italy.

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If the EU finds a way to implement the 15 per cent rate, the State will collect extra cash even if the other part of the OECD deal is delayed, or collapses.

If the EU proceeds with the 15 per cent, then the pressure will come on the US to follow. This is because the OECD agreement stipulates that if the 15 per cent minimum is not collected in a multinational’s home country, then it should be levied overseas before the money returns to the US. And the current US minimum on overseas earnings is 10.5 per cent. Is there potentially more revenue for the State here?

There are two big “buts” here. One is that, on balance, it is better for the State to have the whole OECD deal implemented as it leads to a stable picture. If it is not, then there would be a risk of tensions emerging between the EU and US about who pays what and where.

The second is that future corporate tax revenues here depend on a host of other factors, too. With the risks of an international slowdown or even recession and tremors in the tech sectors, it is time to be careful.