Corporate tax reform may help Ireland in the end

Prime Minister Micheal Martin plans to spend 4% of the country’s GDP on infrastructure

  
Image used for illustrative purpose.

Image used for illustrative purpose.

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(The author is a Reuters Breakingviews columnist. The opinions expressed are her own.)

LONDON - Ireland may ultimately benefit from an overhaul of global corporate tax rules that Dublin reckons will cost its coffers billions of euros. The more likely such a revamp looks, the greater the incentive for the Emerald Isle to revitalise its crumbling infrastructure to remain competitive. That would help fix economic problems that have been masked so far by a healthy tax haul.

U.S. Treasury Secretary Janet Yellen has proposed a 21% minimum corporation tax and received backing from Germany and France for the idea. Dublin reckons this could see its tax haul drop by 2 billion euros a year. While holdouts can’t be forced to adopt this minimum, companies that pay lower tax rates in a particular country would see their home government demand the difference. This would remove the incentive for firms like Apple and Alphabet-owned Google to shop around for the lowest tax jurisdiction.

Dublin has had a good run. Its annual corporate tax revenue was less than 2 billion euros before 1996 when it cut its rate to 12.5% from 40%. In 2020, it was nearly 12 billion euros. And multinationals employ around one in eight people in jobs in Ireland. These companies’ resilience during the pandemic meant Irish GDP grew 3.4% in 2020.

Now that Ireland risks not being able to compete on tax, it is looking at other ways of keeping its edge and attracting foreign companies. Prime Minister Micheal Martin plans to spend 4% of the country’s GDP on infrastructure, ploughing 11.6 billion euros into housing. He also wants to buy 600 electric carriages for its upgraded rail network. The plan, which will be completed in 2027, would see Ireland outdo its European peers, which have historically spent around 3% of GDP on infrastructure.

Such investment is long overdue. The public transport network is creaking, and its chronic housing shortage has meant that companies like PayPal have had to ask employees to offer spare rooms to new recruits. Even if the extra spending doesn’t end up luring new companies, it lays sounder foundations for the economy.

CONTEXT NEWS

- The finance ministers of France and Germany support the U.S. government’s idea of a global minimum corporate tax rate of 21%, they said in a joint interview in Zeit Online on April 27.

- Their Austrian counterpart on April 27 also welcomed the proposal, floated by U.S. Treasury Secretary Janet Yellen, who said this month she was working with G20 countries to agree on a minimum rate.

- The Organisation for Economic Cooperation and Development has been coordinating talks among 140 countries for years and aims to reach a consensus by mid-2021. A deal is likely to be clinched this year, OECD head of tax Pascal Saint-Amans told an online conference organised by the Irish government on April 21.

- Ireland is one of the countries with the most to lose from any such deal since its 12.5% corporate tax rate has attracted big multinationals such as Facebook, Google and Apple.

(The author is a Reuters Breakingviews columnist. The opinions expressed are her own.)

(SIGN UP FOR BREAKINGVIEWS EMAIL ALERTS http://bit.ly/BVsubscribe | Editing by Swaha Pattanaik and Karen Kwok) ((Aimee.Donnellan@thomsonreuters.com; Reuters Messaging: Aimee.Donnellan.thomsonreuters.com@reuters.net))

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