The global minimum corporate tax deal is not damaging to smaller countries such as Ireland, a senior US official has said.
But Janet Yellen, the secretary of the treasury in the United States, said that many countries had been involved in a process that “hurt workers and households” by depriving other countries of their fair share of tax receipts.
“My perspective isn’t that this agreement is damaging small countries or emerging market countries,” she said yesterday. “I think that globally we have seen over many decades, countries throughout the world involved in a process that has hurt workers and households in all of our countries.”
Ireland is set to lose about €2 billion per year in tax receipts as a result of the new rules.
Yellen was in Dublin to meet Paschal Donohoe, the finance minister, before she travelled to Glasgow for the Cop26 conference.
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She added: “It has deprived all of us of the revenue that we bring to invest in our infrastructure, invest in our people, invest in research and development, the investments that really promote growth. We’ve had a so-called race to the bottom in terms of corporate taxation, and no country has really won that race.”
She said the only way to stop countries from lowering their tax rate on an ongoing basis was to introduce a global minimum corporate tax rate so that “corporations here in Ireland and the United States and around the world are bearing their fair share of the tax burden”.
Last month Ireland agreed to sign up to a proposal from the Organisation for Economic Co-operation and Development for a global 15 per cent floor on corporation tax. Ireland only signed up at the last minute when the phrase “at least” was removed from the agreement. The government had been concerned that the use of the phrase “at least” would allow the EU to raise the minimum rate at a later date. Ireland’s corporation tax rate of 12.5 per cent has been seen as key tool to attract multinational companies to the country.
Yellen also said the minimum global corporation tax rate would stay at 15 per cent for the foreseeable future.
“I think we have agreed that 15 per cent is the global minimum tax. Now, of course, individual countries may choose themselves to establish a higher tax, but I expect many countries to adopt a 15 per cent tax,” she said. “And it works for many countries and I don’t think that that’s something that is going to be reconsidered as a global minimum.”
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At an event later with the Institute of International and European Affairs, Yellen said companies had been paying “much less” than even the low corporate tax rate set by some countries. She called this a “beggar thy neighbour” approach.
Asked if Ireland and the EU were worried that the US Congress would not pass the necessary legislation to enable the passage of the 15 per cent global minimum rate in the US, Donohoe said the EU would bring forward proposals in the coming weeks to demonstrate how it would be implementing the agreement.
“We all know that we need to move together,” Donohoe said. “So this is why in the coming weeks and months you will see the EU Commission begin to develop its proposal to do this. What we in turn would hope is that this would enable secretary Yellen to be able to point to the progress that is happening elsewhere.”
Donohoe told the institute that it was the right decision for Ireland to sign up to the deal. He said it was in Ireland’s “long term economic interest” that Ireland had signed up to the OECD agreement on corporation tax.
Yellen called Ireland one of America’s closest allies. She said: “Although Ireland is small it is one of the US’ closest allies. We know we can rely on Ireland to be our ally, not just in the world, but in Europe. And the United States values Ireland’s role as a bridge between the US and the EU.”
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Yellen said she did not “cajole” Donohoe to get Ireland to join the global tax agreement.
“I think we’ve had very productive meetings in which we have tried to understand the viewpoint of Ireland about these tax negotiations and its needs in terms of being able to sign on to this. And also, minister Donohoe has been terrific in trying to understand the US perspective.”
Ireland’s low tax rate for companies was important “once upon a time”, she added. “But our strong view is that Ireland has tremendous advantages as a country with an educated workforce and an excellent business environment that will continue to serve Ireland’s economic interest.”