Ireland stares down significant changes to its tax system

August 11, 2021: -As the OECD’s deadline for finalizing significant reforms to the global tax system draws near, the Irish government opened a public consultation on the deal as it looks after its future.

Ireland is notably one of the holdouts on the agreement, which has seen few 131 countries sign up to the deal, including setting a 15% minimum corporation tax rate globally. In October, the OECD is aiming to finalize the agreement.

Ireland’s vaunted 12.5% rate has been a critical tool in its industrial policy, attracting the few major pharmaceutical and tech giants to its shores, from Pfizer to Facebook.

Any changes to that rate could have profound implications for Ireland as a destination for foreign investment and receipts at the exchequer.

The Dublin government estimated that changes to its tax rate could lead to 2 billion to 3 billion euros in lost tax revenue each year.

Finance Minister Paschal Donohoe has voiced support for reforms of the international system that stops short of agreeing to a minimum rate generally.

“Ireland is broadly supportive of the agreement but signaled a reservation in respect to a commitment to a rate of ‘at least 15%’ for a global minimum effective tax rate,” a spokesperson for the Department of Finance told CNBC.

Ireland has long attracted the scrutiny of its tax regime, most infamously in its affairs with Apple.

Over the years, there have been gradual changes to the global tax landscape that have affected Ireland’s tax regime. A loophole is known as the “double Irish,” favored by some multinationals to cut their tax bills, which was closed in the previous year.

On the flipside, Ireland has maintained a scheme known as the Knowledge Development Box, a low rate of tax related to patents and intellectual property.

KPMG’s Manal Corwin, a former Treasury Department official, said Ireland would face some pressure to sign up for the OECD deal and that maintaining its lower 12.5% rate may be inopportune in the long term.

Corwin also says that the OECD proposal is not a direct request to set a tax rate, but it would make maintaining a lower rate less advantageous for companies when choosing bases for their operations.

Under the present proposals, if Ireland maintained its 12.5% rate, it would pay that tax in Ireland. Still, it would also be taxed on the excess amount by the company’s home country, such as the U.S., in many cases.

Corwin added that Donohoe’s assertions that the lowest rate of 15% could be increased in years to have little basis.