Government will no longer guarantee 12.5% corporate tax rate

24 September 2021

The issue of international corporate tax reform was firmly back on the agenda this week as Irish policymakers’ steadfast commitment to the 12.5% rate looks like it has begun to waver. 

From across the pond, the US Treasury Secretary Janet Yellen, urged Minister for Finance, Paschal Donohoe to take the “once in a generation opportunity”. Separately, European Commissioner for the Economy, Paolo Gentiloni, visited Dublin on Monday. He said his visit was not intended to put pressure on the Government but to “respectfully discuss” the importance of the potential agreement with Minister Donohoe. 

Minister Donohoe for his part told the Dáil on Tuesday during Parliamentary Questions that there are “too many significant unknowns” to strike a deal yet. He still insists that the reference to “at least 15%” in the OECD’s proposal is “deeply problematic” for Ireland.  The Government wants assurances that the rate would be 15% and no more, and that the EU would not then try to introduce a higher rate for Member States. 

However for the first time, this week both Taoiseach and Tánaiste signalled that the rate could indeed change in a significant shift in rhetoric from both leaders. After Cabinet’s meeting on Tuesday, the Tánaiste Leo Varadkar even raised the possibility that there could be two corporate tax rates in Ireland and that the 12.5% rate would be retained for smaller and mid-sized companies.

The Taoiseach Micheál Martin however, who was visiting New York this week and was asked repeatedly about the matter, was markedly less forthcoming. On Monday he told reporters that he would not be making commitments to American companies that Ireland would be keeping its 12.5% corporate tax rate. 

The next day when he was asked whether his comments should be considered a “white flag” for the 12.5% rate, he said that they should not. “Negotiations will continue between all of the countries involved so I’m loath and reluctant to get into the specifics until the final process is concluded.”

It is likely that no firm stance will be taken by the Government until the outcome of the discussions at the OECD, and events in the US Congress become clear. As things stand, Congress is deeply divided on the Biden administration’s proposed tax increases.

From an Irish perspective, the opposition parties are unaligned. Sinn Féin has said it supports international tax reform, but that “any global minimum corporate tax rate under pillar two can and should accommodate our domestic rate of 12.5%.” The Labour Party said this week that a “small marginal increase” of the effective minimum rate could be tolerated and would not inhibit Ireland’s ability to attract FDI. 

This view is shared by Commissioner Gentiloni, who said “that the attractiveness of the Irish economy is not based on a small difference in the corporate tax rate”, adding there are several more competitiveness factors working in Ireland’s favour as an English-speaking country with a highly educated workforce.