Europe

Ireland caves to Biden as corporate tax rate to be raised – ‘Gains to the exchequer’

Joe Biden: Expert slams US President over tax rate proposal

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When US tech giants Apple, Google, Amazon or Facebook chose Ireland as the best place for their European headquarters, the number one asset was the local low tax rate. In fact, since 2003, the Irish low tax rate has been part of the country’s strategy to attract international investment.

However, a new agreement drafted by the Organization for Economic Cooperation and Development (OECD) has been backed by 130 countries that all want to set a global minimum rate of 15% on multinational companies with revenue of more than $890 million.

So far in Ireland, the corporate tax rate for such companies has been 12.5%.

The objective of this global campaign is to stop large companies from moving their headquarters to places with low rates even though they profit from sales in countries with higher rates.

According to the London-based Tax Justice Network advocacy group, the amount governments lose in corporate tax to tax havens every year is $245 billion (£180m).

The new tax rate will affect 1,556 companies in Ireland employing 500,000 people while costing the country €2bn (£1,70bn) in coming years.

Irish Finance Minister Paschal Donohoe said the estimate of the loss was based on companies paying a smaller share of their overall taxes in Ireland, offset by a higher rate.

“I believe that change will be right for Ireland and I believe it is also right for Ireland to be playing a positive role in implementing what I believe will be an important agreement,” said Mr Donohoe in an interview, adding the deal provided “certainty and stability”.

Asked if the new rate would remain forever, he said: “I can’t see in my lifetime this kind of circumstances developing again. 15 will mean 15.”

Karen Frawley, president of the Irish Tax Institute, said Ireland “didn’t want to be in a position where its reputation was very damaged — not signing up would have made us seem to be almost like a tax haven,” according to the Financial Times.

“At 15 percent, Ireland still remains a very attractive location for foreign direct investment,” said Tom Woods, head of tax at KPMG.

“The changes should also yield additional gains to the exchequer,” he said in a statement.

However, the agreement will only have a deeper effect if all 130 countries manage to implement the new corporate tax rate locally.

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Joe Biden, for instance, isn’t assured the Senate will back up the project.

President Biden is trying to increase the corporate income tax rate to 28% from 21%.

Trump had lowered the rate to 21% from 35%.

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