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Ireland joins OECD International Tax agreement

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  • Landmark agreement will address global tax challenges of digitalisation
  • Global minimum effective corporation tax rate of 15% for multinationals with revenues in excess of €750million
  • No change to the 12.5% rate for businesses with revenues below €750million
  • OECD’s Inclusive Framework to meet on Friday to agree the statement and implementation plan

The Minister for Finance, Paschal Donohoe, has today (Thursday) received Government approval to join an international agreement to reform the international tax rules to address the challenges arising from the digitalisation of the global economy.

Speaking after today’s Cabinet meeting Minister Donohoe welcomed the decision,

‘The Government has given approval today for Ireland to sign up to the political agreement at the OECD Inclusive Framework on a new tax framework to address the tax challenges of digitalisation.’

There are two pillars to this agreement. Pillar 1 will see a reallocation of a proportion of profits to the jurisdiction of the consumer. Pillar 2 will see the adoption of a new global minimum effective tax rate applying to multinationals with global revenues in excess of €750m

The agreement represents an important step towards resolving the issues brought about by the digitalisation of the economy which resulted in the international tax framework struggling to accommodate the evolving business models of large multinational enterprises.

The agreement to be discussed at the OECD’s Inclusive Framework tomorrow has been updated to provide additional clarity, which prevented Ireland joining the consensus in July. The proposed minimum effective tax rate of ‘at least 15%’, which was an open issue, has been set to a precise rate of 15% and Minister Donohoe noted the importance to Ireland of this development,

‘‘The agreement provides that the minimum effective rate for multinationals with an annual revenue in excess of €750 million is 15%. 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.

This 15% rate will apply to 56 Irish multinationals employing approximately 100,000 people, and 1500 foreign owned MNEs based in Ireland employed approximately 400,000 people.

Furthermore, the vast majority of businesses in Ireland will be outside the scope of this agreement, and there will be no change to their corporation tax rate. This is important for the domestic economy and the thousands of SMEs that operate here.

For over 160,000 businesses in Ireland with a turnover less than €750million per annum, who employ approximately 1.8 million people, there will be no change to their corporation tax rate of 12.5%.’

The recognition of the important role that research and development plays in the modern global economy and society is another key aspect of the agreement and Minister Donohoe noted the important role innovation has played in responding to the global pandemic,

‘We have seen over the last two years the benefits of innovation – critically in respect to the vaccines which are allowing society now to reopen, but also the role that technology played in keeping businesses open. Innovation matters and it is right that the tax system can support this. I am pleased that it has been recognised and delivered in the agreement.’

The 140 member jurisdictions of the OECD’s Inclusive Framework will meet tomorrow to reach an agreement, and an ambitious implementation plan for the proposed two-pillar solution. There is much technical work to do in the months and years ahead before the new rules come into play which is expected to be as early as 2023.

Minister Donohoe indicated that he expected Ireland to continue to remain a very attractive location for FDI long after the OECD agreement is implemented,

‘I am confident that Ireland will remain competitive into the future, and we will remain an attractive location and ‘best in class’ when multi-nationals look to investment locations. These multinational enterprises support our economy with high value jobs and at the same time, Ireland provides a stable platform and a long proven track record of success for MNEs choosing to invest here.

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