And so the crunch has come. It looks as if the Cabinet will be asked on Thursday to give the green light to ending the 12.5 per cent corporate tax rate and replacing it with a rate of 15 per cent.
This is on the back of the latest draft texts of the Organisation for Economic Co-operation and Development (OECD) agreement which have dropped the wording that the new rate should be “at least 15 per cent” and replaced it with what appears a clear commitment to a rate of 15 per cent.
The exact wording of the final text remains in play, and fresh drafts will circulate on Wednesday.
The uncertainty over the future rate was the key reason why Ireland did not sign up to the draft OECD text in July, fearing that the rate could drift upwards. Minister for Finance Paschal Donohoe has made the case that smaller countries like Ireland should be allowed to compete on the basis of low tax rates in future.
The removal of the “at least” phrase is thus a win from the Irish Government’s point of view – and is likely to see the Cabinet sign up to the deal.
It may not be the end of the battles, however. If an OECD deal is concluded the next key point for Ireland is when the EU comes to draw up a directive to implement it next year.
Donohoe is likely to see what assurances he can get from the European Commission that it will not push for a higher rate than 15 per cent in the EU. Indications are that some progress has been made in this area, with key commission figures indicating that they will not try to amend the OECD tax when transposing it into EU law. However, further contacts will take place to see what level of assurances Ireland can get before the Cabinet meeting.
Turnover
Ireland will also seek a nod from the commission and the OECD that it can retain the existing 12.5 per cent rate for companies with turnover below the €750 million turnover limit mentioned in the OECD text. Some sources suggest that discussion on this may go on beyond the decision to sign up to the deal.
The final key uncertainty for Ireland is then what happens in the US, where Congress is trying to agree a major economic and tax package, including new rules for taxing the overseas earnings of US companies.
This could pose a greater danger to Ireland than the OECD agreement, according to Peter Vale, tax director at Grant Thornton, particularly if the US opts for a significantly higher rate than the OECD.
The OECD deal is not done. A number of countries who signed up to the original draft deal are threatening to pull out, and some developing countries argue they are not getting a fair deal.
The part of the deal which reallocates taxing rights remains controversial – and the outcome here remains important for the Irish exchequer, which could lose up to €2.5 billion a year.
Donohoe has previously pointed out that this is a significant cost for Ireland, but he still believes that the certainty of a deal is to Ireland’s advantage. The country has also implemented significant legislation in line with the earlier OECD deal on profit-shifting .
Objections
If the OECD deal does collapse then, provided Ireland signs up, it will do so due to objections elsewhere. This is politically important for Ireland too.
For now an OECD deal looks more likely, either on Friday or later in October, though the uncertainty of what happens in Washington remains and will hang over the process until it is clarified.
This one won’t be over until it is over, but the crunch decision on the 12.5 per cent rate looks likely to come on Thursday.
