Ireland’s second biggest opposition party has backed a “small increase” in the country’s corporate tax rate, in a sign that Dublin’s longstanding political consensus on multinationals is cracking after the G7 agreed a plan for global taxation reform.
Ireland’s 12.5 per cent headline tax rate has been central to its success in attracting multinational companies for many years. But Dublin now faces a significant challenge after the G7 group of leading nations this weekend endorsed a 15 per cent global minimum levy.
Ged Nash, finance spokesman for Ireland’s Labour party, told the Financial Times he was calling for a “national conversation” on a potential increase.
“A small increase [in Ireland’s corporate tax rate] is something I believe we can live with,” Nash said. He added that while “we are not even close to that” because the OECD has not agreed a global deal yet “the first thing we need to do is start building a consensus here in Ireland politically”.
Nash said he would raise the issue with Irish finance minister Paschal Donohoe in parliament next week.
“The minister needs to front up with parliament on what the options for Ireland are,” Nash said. He added that the opposition should be given enough information to weigh the pros and cons of increasing Ireland’s corporate rate to the global minimum or defending the existing levy which all political parties have long backed.
If a global agreement is reached on a rate higher than Ireland’s current levy and Dublin chooses not to implement it, other countries could then retrieve the remaining tax revenues, according to the plan under discussion. This would be politically unpalatable in Ireland, some observers have warned.
Ireland raises almost €12bn a year in corporate tax, out of a total tax take of around €57bn. In a report published last month, Dublin’s Economic and Social Research Institute warned that higher tax rates could hurt Ireland’s small and medium-sized businesses, which employ around two-thirds of the country’s workers.
“The 12.5 per cent tax rate has become almost an article of faith in Irish politics,” said Gary Murphy, head of the school of law and government at Dublin City University. Even Sinn Féin — the biggest opposition party and the most leftwing — has been cautious about raising it, he said.
But on Tuesday, Pearse Doherty, a Sinn Féin finance spokesman, told the FT that while he “wasn’t advocating” increasing Ireland’s tax rate, he had asked the Department of Finance for detailed analysis on whether it would be “beneficial” for Ireland to adopt a 15 per cent rate solely for multinationals and whether such a measure was possible.
He also wanted to see simulations on increasing the corporate tax rate “across the board” and keeping it at 12.5 per cent, he said: “We need to go into this [international negotiation] with our eyes open.”
Speaking after the G7 meeting on Saturday, Donohoe told reporters that he would continue to “make the case for legitimate tax competition”.
An Irish government official told the FT that while Dublin wanted to defend the 12.5 per cent rate, it could be “difficult for Ireland to resist” increasing it if the US pursued the 15 per cent global minimum.
Ireland’s Department of Finance estimates Dublin could lose €2bn a year from corporate tax reform, although Donohoe stressed on Saturday that the potential cost was already built into Ireland’s economic forecasts. The department declined to comment, other than referring to the minister’s statement.
Talks are continuing among 139 countries at the OECD in Paris, with the goal of reaching a deal later this year.