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Taxing times for Government as corporation tax decision looms large

When Paschal Donohoe gets to his feet on October 12th to deliver the Budget, watch out if his speech contains a key line.

Last year he said: “…I would like to take this opportunity to again reaffirm Ireland’s commitment to the 12½ per cent corporation tax rate.”

This year, by Budget Day, we may know the fate of our totemic 12.5% corporation tax rate.

Because during the week prior to our Budget, finance ministers will have met at the OECD in Paris and the group of officials involved in negotiating the ‘Framework Agreement’ on tax reforms will have signed off on the final version on Friday 8th October.

At least that’s the plan.

So, will Paschal Donohoe’s speech contain a reaffirmation of our 12.5% rate or reflect the dawn of a new corporate tax order?

Or, if the many moving parts in this drama keep moving…will his speech mark a continuation of the delicate balancing act of being involved in the OECD process but remaining outside the Framework Agreement?

International corporate taxation is a complicated business. And the politics of international corporate taxation reform are complicated too.

On Monday, the Finance Minister confirmed that Ireland has not changed its position and view on what has been agreed by the vast majority of the 140 countries and territories in the OECD’s tax reform agreement.

The part of the agreement that refers to a global minimum corporation tax rate of “…at least 15%…” remains “deeply problematic” in the words of Minister Donohoe.

There is also the general principle of retaining the sovereign right to use tax competition as a tool to attract foreign investment which Ireland believes is undermined by what’s been agreed at the OECD.

Ireland remains committed to the process, the Minister said, which implies we want to be part of a deal, but the Minister also said it was possible Ireland might opt out of the final arrangements.

In other words, Paschal Donohoe is keeping his cards very close to his chest.

It was fitting then that the next rattling of nerves came from the US where the Taoiseach told reporters and repeated to the financial news channel Bloomberg that he could give no commitment either way on Ireland’s 12.5% rate.

Some viewed that as ceding ground to an eventual capitulation.

That remains to be seen, but it was a more explicit statement than we have heard before of the stark position in which Ireland finds itself.

The eventual answer may not come from Merrion Street, or indeed Paris.

It may lie a few hours down the tracks from where the Taoiseach stood in New York yesterday in the corridors of Capitol Hill in Washington.

Two things are happening there now.

The provision for the minimum corporate tax rate is bundled up in an increasingly messy number of budget bills working their way through Congress.

Then, there’s the divvying up of the profits of the world’s largest companies according to where they make their sales.

It’s far from clear if this provision of the Framework Agreement will require some form of international treaty. If it does, that would need the approval of a two thirds majority in the US Senate.

That could be very difficult to achieve.

Indeed, we could get an agreement finalised next month, but we may still be some way off a deal.

Article Source – Taxing times for Government as corporation tax decision looms large – RTE – Robert Shortt

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