Experts say Ireland’s economy could survive OECD tax reform

Published 3/7/2021 4:28 PM

(Credit: AFP/PAUL FAITH)

On paper, the Irish economy, with its low taxes, has a lot to lose from the global agreement on multinational taxation. But in reality, according to experts interviewed by AFP, it may not pay off much.

On Thursday, 130 countries concluded a “historic” agreement on taxing multinational corporations that includes a 15% minimum tax on profits. Ireland has not signed this text promoted by the Organization for Economic Co-operation and Development (OECD).

This body believes that the agreement will generate another $150 billion in tax collection, adapting the tax system to the modern economy, and strengthening public finances decimated by the coronavirus crisis.

Irish Finance Minister Pascal Donohue said he “jointly supported” the deal but had “reservations” that led him not to stick to the deal.

Since 2003, Ireland has kept the corporate tax at 12.5%, which has attracted the European headquarters of many US companies, such as tech and pharmaceutical giants, whose profits have skyrocketed during the pandemic.

– A ‘more sustainable’ model –
In the eyes of some analysts, its economy is highly dependent on multinational corporations such as Facebook, Apple and Google.

In fact, only ten companies generated 51% of the corporate tax collected in Ireland in 2020.

The Treasury expects a loss of €2 billion annually ($2.373 billion) from 2025 if this lower rate is applied.

According to researchers at Oxford Economics, an OECD reform would make Ireland one of the most indebted countries, while battling shocks caused by the neighboring United Kingdom’s exit from the European Union.

But there is room for maneuver for Ireland, as evidenced by the fact that financial services have been left out of the deal, which is in the UK’s favour.

“Each country can use its bargaining power to obtain exemptions for its pillars,” says economics professor Lucy Gadian of the University of Warwick. “Ireland is trying to maximize its bargaining power through resistance and pressure at the European level.”

“Ireland’s tax haven model has been very beneficial, but perhaps he will have to move towards a more sustainable economic model,” he adds.

– Exaggerated concern –
According to John Fitzgerald of Trinity College Dublin and a former commissioner of the Central Bank of Ireland, his country’s concerns are overblown.

He “sees no reason” not to adopt the reform “if the United States implements it,” though he cautioned that its president, Joe Biden, has not yet convinced opposition Republicans in Congress.

“No business will benefit from leaving Ireland if the 15% is everywhere, so it is better to stay in Ireland and pay,” Fitzgerald told AFP.

He points out that “if the US applied the rule, Ireland could have more income”.

Low taxes aren’t the only attraction in Ireland, which also has an educated English-speaking population and a solid infrastructure.

“The jobs are going to stay here because there are the skills, the capital investments, the physical capital, which can’t be changed easily. I don’t see any long-term implications for the Irish model,” Fitzgerald adds.

Moreover, the road to implementing the agreement is long: negotiations are still pending, including the meeting of G-20 finance ministers in Italy this month, and policy discussions in the US Congress and the European Union.