Ireland’s exposure to what the US decides on corporate tax shown up once again

As ever Ireland is caught in the middle between the EU and US on the corporation tax agenda. Having signed up to the 15 per cent minimum tax rate, Ireland is supporting moves to have this written into law across the EU, though objections by Poland, Sweden, Estonia and Malta have held this up. Behind this delay is uncertainty about what the Joe Biden administration in the US can deliver.

As the home for international headquarters of major US companies, Ireland is watching events in the US very closely. Indeed, Finance Minister Paschal Donohoe again spoke to US treasury secretary Janet Yellen this week, though we do not know what passed between them. But a key point in the latest budget plans put forward by the administration is an increase in the Gilti rate – the minimum tax rate on the overseas earnings of US companies.

The Biden administration is proposing to increase this rate to 20 per cent, which would be above the 15 per cent minimum OECD corporate tax rate. It would mean big US companies here could pay tax at 15 per cent here and face a 5 per cent top-up in the US, effectively undermining the attractiveness of the Irish tax rate. It again underlines the exposure of Ireland to what is decided in the US on corporate tax.

Part of the context of this is the failure of the administration to get the president’s Build Back Better bill through Congress last year, stymied in part by a few “moderate” Democrat senators who do not support higher taxes. This means there are doubts over the passage of the budget bill, and the president’s wider economic agenda, including measures to implement the OECD deal.

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The budget proposals, some speculate, may be an opening gambit – and remember that in the US it is the Congress which puts the whole thing together.

Biden may be forced to compromise on the proposed increase in corporation tax. With November mid-term elections looming time is not on his side, and this means the future of the OECD deal still hangs in the balance.