Corporate tax to increase from 12.5% to 15% as Ireland agrees to back global reforms

IRELAND WILL SIGN up to a global agreement that would increase the State’s corporate tax rate for large companies to 15%.

Cabinet today agreed to sign up to the OECD proposals after the government risked seeing the country amongst a handful of states that would not agree to the minimum tax deal.

Speaking after Cabinet today, Finance Minister Paschal Donohoe said: “I believe that the upsides of being in such a historic international agreement far outweigh the downsides of staying out. This is a difficult and complex decision but I believe it is the right one.”

The proposals were approved by the G20 group of large economies in July and Ireland becomes the 135th out of 140 OECD countries to sign up.

Ireland did not sign up the plans in July with Donohoe stating that the government first wanted greater certainty about future rates.

The Cabinet’s decision comes ahead of a meeting under the auspices of the the OECD (Organisation for Economic Co-operation and Development) scheduled for tomorrow.

Ireland’s approval removes a key stumbling block to the global efforts and the G20 leaders are expected to formally sign off on the deal when they meet in Rome in late October.

Legislatures in country will then have to approve the reform with the OECD hoping that the new tax regime could be in place by 2023.

The government had resisted committing itself to the deal until this week, first seeking clarity on a number of issues.

Tánaiste Leo Varadkar told the Dáil today that the government had received assurances that the State could operate two rates of corporate tax, with those below the €750 million threshold paying tax at 12.5%.

The Department of Finance said this evening that it expects that the 15% rate will apply to 56 Irish multinationals employing approximately 100,000 people, and 1,500 foreign owned companies based in Ireland employed approximately 400,000 people.

Taoiseach Micheál Martin told reporters in Slovenia yesterday that the change to the text “represents very significant progress” but that Ireland’s challenge is maintaining “certainty around tax for investors and for companies that are located here”.

Ireland has seen many multinational firms base themselves here in part because of the low 12.5% corporate tax rate that has existed since 2003.

A previous draft of the deal had seen nations agree that multinationals should pay “at least” 15% corporate tax, but the phrase “at least” was dropped partly due to Ireland’s insistence that more certainty was required.

Donohoe said this evening that this was critical to the government’s decision.

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‘‘We have secured the removal of ‘at least’ in the text. This will provide the critical certainty for government and industry and will provide the long-term stability and certainty to business in the context of investment decisions,” he said.

In the hours after the announcement, Estonia’s government said it would also sign up to a 15% global minimum tax rate on multinational firms, leaving only Hungary as the last ‘hold-out’ nation.

“We are joining the global tax agreement,” Prime Minister Kaja Kallas said in a statement, adding that it “will not change anything for most Estonian business operators, and it will only concern subsidiaries of large multinational groups”.

- with reporting by Christina Finn and Rónán Duffy