Minster for Finance Paschal Donohoe has said Ireland, the US and the EU are at a “high point” of economic co-operation, particularly over the issue of corporation tax.
Speaking in Washington after a meeting with US Treasury Secretary Janet Yellen, Mr Donohoe said he expected the 15% Minimum Corporation Tax Rate will be made law in both the EU and the US this year.
He said that would give a boost to technical discussions that are still ongoing, aimed at agreeing how states will re-apportion the right to tax income streams from multinational corporations.
He said the agreement so far had provided certainty for US companies investing in Ireland, and for the Government’s own revenue projections.
A great deal of intensive bilateral work between Ireland and the US, he said, had provided a degree of certainty that has led to a number of major investments by US multinational companies.
“If you look at what Ireland and the United States have achieved over the last two years, the two countries have come together to reach a common understanding in relation to the future of corporation tax,” he said.
“Secondly, we are seeing trade between the US and Ireland continue to grow, but it’s growing in both directions. We are seeing Irish companies becoming increasingly large investors into America.
“And finally, Ireland showed that it can be a safe and resilient partner in supply chains that are global, but that originate from American companies.”
He added: “So if I look at the level of coordination and co-operation that’s under way between the US and Ireland, it has never been on a more positive level than it is now”.
Although there has been broad agreement on setting 15% as a new Global Minimum Corporation Tax rate, the measure has yet to be passed into law on either side of the Atlantic.
Mr Donohoe, who is also President of the Eurogroup of Finance Ministers, said Ireland has backed draft EU legislation “because we believe the proposal discussed with the EU is consistent with the global agreement that Ireland entered last October”.
He expects that “at some point later on this year, a new tax directive will be agreed within the European Union, and that in parallel you will also see a similar measure within the United States of America.”
“That will be a really big global tax coordination and co-operation we have achieved while also protecting, I believe, our competitiveness, and we’ve also been able to do this in a co-operative way would press the Biden ministration.
There are Congressional elections in the US in November. Asked if the election and its outcome might change the legislative outlook in the US, Mr Donohoe said: “I still believe that President Biden’s administration will be successful in reaching agreement in relation to the minimum tax rate elements of these proposals here in America. And that will be part of the world moving to a 15% tax rate across the coming years.”
However, the second part of the OECD-led corporate tax reforms is a method of apportioning taxing rights to allow countries to tax corporate profits where they are generated, not necessarily only the state where they are recorded in the company’s books.
That current arrangement has suited low tax regimes and tax havens, but the new method – which has still to be worked out – combined with the minimum global tax rate, is intended to reduce corporate profit shifting, and align taxing rights with where sales take place and profits are generated.
In terms of where those talks stand, Mr Donohoe said: “The deadline has been set for the summer, to try to reach a political commitment regarding how that work will be delivered across the coming years.
“It’s fair to say that is a hugely technical and complex, and where the political focus lies at the moment is on the implementation of the rates, because if we reach agreement on the implementation of the 15% rates across the world across next year or 2024 That will give a boost to the (technical) work that is underway in the OECD in Paris, and Ireland is part of those discussions.
Overall, Mr Donohoe said he believes the agreement on the 15% Minimum Corporate Tax rate has led to increased investment in Ireland – notably by Apple, Alphabet and Intel – improved economic relations with the US government, and will provide the stability to the tax base that is needed for Government budget-making in the years ahead.
“If I look at the agreement that I believe we’re already in the early phases of implementing, it is consistent with the agreement we entered last October. It is consistent with the assumptions that we have made in our budgetary planning. And I think what is important is since that agreement was reached, we have continued to see further investment in Ireland for large global and large American companies,” he said.
“And that shows that the agreement entered into last October continues to be good for our competitiveness, but as also reaffirmed the view large companies have Ireland as a very predictable and very safe place within which major investments can be located.
“And that’s why the tone of the meeting I had with Secretary Yellen here today, is one that recognises the co-operation and the coordination that’s taking place between Ireland and America is on a very high and very, very positive level”.
Mr Donohoe also spoke of the risks facing the Irish, Western and Global economies arising from the war in Ukraine and the post-Covid economic recovery.
He said. “We are seeing the cost of borrowing for governments beginning to increase. We are seeing really difficult risks in relation to food security. The price of energy really beginning to develop and they will become more intense as we move through 2022”.
The negative outlook will impact on the Government’s budget making plans, as it seeks to strike a balance between protecting living standards being eroded by inflation, and trying to protect the overall health of the public finances and economic competitiveness.
Mr Donohoe said: “Decisions that the Government will have to make in relation to expenditure in relation to borrowing will be happening in a world that is changing and a world that is experiencing new risks later on in the year.
“I’m very confident about the ability of our economy, to be able to respond to these risks to be able to deliver the level of growth, but it is important to also recognise that the risks are changing, and that we have to make decisions particularly on Budget Day that do all we can to protect the stability of our national finances that in turn the ability of our country to grow in an environment that is quickly changing”.