Ireland worries as Biden tax plan casts doubt on business model – POLITICO


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DUBLIN – US President Joe Biden often proclaims a sentimental weakness for Ireland. But his administration’s vision of a 21% tax rate on US corporate profits abroad could hit the Irish the hardest.

Over the decades, Ireland has honed a sales pitch that has courted hundreds of American businesses on an island on the far reaches of Europe that offers few natural resources outside of its people. The key to the attraction has been Ireland’s 12.5% ​​corporate tax rate since 2003.

France and Germany – whose interest rates exceed 30% – have long complained that Ireland is unfairly absorbing too much investment from US companies to the detriment of the wider European single market. The Irish retort that the French and Germans should lower their own rates to be competitive.

This argument seems to lack ground. If the rising political forces on both sides of the Atlantic are successful, a global minimum tax rate will eventually blunt, if not eliminate, Ireland’s advantage.

“The genie is out of the bottle. We have seen a very significant change in the position of the United States, ”said Dermot O’Leary, chief economist at Goodbody Stockbrokers in Dublin.

“We need to be prepared to receive less corporate tax income. It’s something we can plan for, ”O’Leary said. “The biggest problem is its impact on our industrial strategy. It requires rethinking what we can offer the multinationals that set up shop here.

Even though concrete changes could take years, top Dublin officials are already waging war against the potential damage that a globally higher corporate tax rate would do to Ireland’s ability to continue to attract US investment.

While it’s still just a whisper in the halls, for the first time, the Irish are imagining a future where their global rhythm is no longer an immutable pillar of industrial policy.

“We have always said: we will never reach 12 points 5. But there is little practical point in continuing to draw that line in the sand if the OECD tide finally comes,” said a senior Irish official, referring to the Organization for Economic Co-operation and Development based in Paris. He is seeking a minimum rate to be applied in 139 countries, including the United States and Ireland.

Defend the goose that lays the golden eggs

While Donald Trump has rejected the OECD effort, Biden and his Treasury chief Janet Yellen are backing him and, as part of any deal, want US multinationals to pay 21% of their overseas profits. .

Ireland is counting on other OECD countries to lower this proposed rate and leave room for Ireland to continue offering a tax cut compared to France, Germany and others. larger competitors. He is looking for a common cause with other small EU countries capable of winning foreign direct investment, notably the Netherlands and Luxembourg.

“Small countries, like Ireland, must be able to use tax policy as a legitimate lever to offset the advantages of scale, resources and location enjoyed by large countries,” Irish Minister of Finance told POLITICO, Paschal Donohoe.

His finance ministry on Wednesday released budget plans that assume Ireland will lose € 2 billion in annual corporate tax collection by 2025 due to global tax reform. This would reflect the impact of both a potential minimum tax regime and a parallel OECD effort to distribute tax gains more equitably among countries where multinational products are sold, and not just those where these products are owned or managed.

Donohoe, who is also Eurogroup chairman, said Ireland is “much better positioned to absorb the expected shock to corporate tax revenues” as it has broadened its tax base over the past decade and refinanced much of its national debt at historically low rates.

But he said Ireland was determined in all talks with the United States and the OECD to preserve “legitimate tax competition” under “fair and lasting” rules.

For now, Ireland are winning this competition. Last year he collected a record 11.8 billion euros in corporate tax, representing one-fifth of total income, just behind income tax. Most were from US companies, including two-fifths of 10 companies that the Irish Revenue Agency refuses to identify.

Today, multinationals have a huge footprint. The American Chamber of Commerce in Ireland reports that more than 700 American companies in the country employ 160,000 people directly and 130,000 more in support roles, or one-eighth of the workforce.

Seamus Coffey, an economist at University College Cork and former chairman of Ireland’s fiscal watchdog, the Fiscal Advisory Council, in 2017 drafted the state’s blueprint for corporate tax reform. He says Ireland is by far the largest per capita foreign recipient of US multinationals in the world, both in terms of jobs and income.

Based on IRS figures for 2018, he said, corporate tax paid to Ireland by US multinationals was € 1,400 per man, woman and child, or l the equivalent of the total cost of state pension payments to the country’s 600,000 retirees.

The OECD’s first attempt to tackle Base Erosion and Profit Shifting (BEPS) in 2013 unintentionally helped attract more assets from US companies to Ireland. This happened because the new rules required international business tax reporting centers to have “substance” – real factories and real workers.

In the meantime, a new elite has emerged, triggering a relentless real estate boom. As in San Francisco, the exceptionally high salaries of this elite have helped push residential rents in Dublin to the highest in the EU. This residential pressure is felt to a lesser extent in Cork’s second largest city, where Apple and a number of pharmaceutical companies are major employers, and in the medical technology hub of Galway.

These high wages, in turn, have bolstered an income tax that has proven to be the most resilient in Europe despite more than a year of massive layoffs of lowest-paid service workers. While Ireland keeps taxes low for businesses, it does the opposite for well-paid workers, who are taxed almost 50% on their income over € 34,000.

Victory in the small print?

Amid introspection, government economists and outside analysts argue that Irish multinational clusters are deeply rooted here and will continue to grow even if the tax environment deteriorates.

“People are not going to leave Ireland for a lot of good reasons. But the more the tax rate increases, the less attractive Ireland becomes. It is therefore in Ireland’s interest to keep this agreed minimum rate relatively low, ”said Peter Vale, Head of International Taxation at Grant Thornton in Dublin.

Vale expects the US target of a 21 percent rate to be reduced in OECD negotiations to between 15 and 17 percent. This would leave Ireland with a residual tax advantage that could grow again as Britain – traditionally Ireland’s closest competitor for US business investment – loses leverage by exiting the ‘EU and increased its own rate to 25%.

“Let’s say it’s an overall rate of 15 percent. You would pay 12.5% ​​here and 2.5% in the US, ”Vale said. “Ireland would still be the best place for tax purposes in Europe.”

He doubts that in such a scenario Ireland will raise its rate by 12.5% ​​to claim that extra 2.5%, rather than let it sail to America. The reason? Irish businesses will gain an advantage in a world with a global minimum tax on profits domiciled abroad.

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