Editorials

The Irish Times view on the EU corporate tax deal: overdue progress on implementing OECD agreement

EU member states are now due to legislate in 2023 for a 15 per cent minimum corporate tax rate - other countries will follow ,though there are still barriers to the full implementation of the OECD tax deal

European Commissioner for the Economy Paolo Gentiloni who has led EU negotiations on the introduction of the new minimum 15 per cent corporate tax rate (Photo by Kenzo Tribouillard/ AFP)
Tue Dec 20 2022 - 21:30

The decision by EU countries to move ahead and introduce a minimum corporate tax rate of 15 per cent for the biggest companies is a landmark moment in the long-running attempts to ensure major multinationals pay a fair share of tax. Other countries are likely to follow, though full implementation of all parts of the OECD deal still faces many obstacles

The 15 per cent rate was one of the two key elements – or pillars – of the OECD plan, agreed in October 2021 by more than 130 countries. The EU, whose biggest members pushed hard for an OECD agreement, had difficulties in agreeing an implementation plan. In recent months this came down to opposition from Poland, and then Hungary, which seemed more related to other issues than the 15 per cent proposal itself.

Now, with Hungary finally removing its opposition as part of a wider agreement with Brussels, all EU members are due to introduce the new rate in legislation before the end of next year, meaning it would become operational from the start of 2024. For Ireland, this means a new rate for the major overseas – and probably a few Irish – multinationals. The 12.5 per cent rate would remain for the rest of business.

With the EU moving, other countries also have an incentive to do so. And the way the tax is structured, the more countries introduce it, the greater the pressure on the laggards to sign up, if they do not want to lose out on revenue. A key issue, however, is that new legislation introduced in President Biden’s Inflation Reduction Act includes a new 15 per cent minimum, but not on the same basis as the OECD proposal.

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There may be an incentive for the US Congress to align the two and remove significant complexity for big US companies. If not, it will obviously be a blow to the smooth implementation of the agreement. And that is before consideration of the implementation of the other part of the OECD deal, which involves redistributing where some of the profits of the big players are taxed.

For Ireland, having signed up late in the day to the 15 per cent rate, its implementation in the EU is good news, as a collapse in these talks could have led to a messy process where EU countries went ahead unilaterally, or even pressure at some stage for a higher minimum rate in Europe. That said, as Ireland is the home for major US multinationals, the lack of alignment between US and EU rules is not ideal, even it will keep tax accountants and lawyers in business.

While Ireland had feared losing revenue from other elements of the OECD deal, the increase in the minimum rate will, of course, mean more tax paid here. However with the international economy heading for recession and fears over the tech sector, other factors are likely to be even more important in the next couple of years in determining the path of these vital tax revenues.