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IRELAND SPINS GLOBAL TAX MESS INTO $28 BLN OF GOLD

By Aimee Donnellan
October 8, 202411:59 AM GMT+1Updated 24 days ago
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CommentaryBy Aimee Donnellan

The Irish flag flies above the General Post Office on O’Connell Street, in
Dublin, Ireland, November 27, 2010. REUTERS/Cathal McNaughton Purchase Licensing
Rights, opens new tab
DUBLIN, Oct 8 (Reuters Breakingviews) - Jack Chambers has an unusual problem for
a finance minister: too much money. The Irishman last week said, opens new tab
he expected a 24-billion-euro budget surplus in 2024, thanks to an Apple
(AAPL.O), opens new tab back tax bill and ballooning receipts from other large
U.S. multinationals.
If recent efforts to clean up the global corporate tax system had worked,
Chambers’ happy predicament shouldn’t be possible. The Organisation for Economic
Co-operation and Development brokered a landmark deal, opens new tab in 2021,
which was supposed to reduce the incentives for corporate profit shifting to
low-tax countries like Ireland, and end the race to the bottom on global rates.
Luckily for Dublin, there’s little sign of anything changing.
Advertisement · Scroll to continue

Ireland’s bulging coffers this year are, admittedly, unusual. The surplus that
Chambers plans to start divvying out is due in large part to a European court
ruling that forces Apple to hand about 13 billion euros to Dublin, in recompense
for what Brussels characterises as a sweetheart historic tax deal. Yet Ireland,
which didn’t want the money, would still be comfortably in surplus without the
iPhone maker’s cash. The International Monetary Fund expects the Emerald Isle to
have a positive budget balance for many years.
Advertisement · Scroll to continue

And it’s clear that Ireland is an international outlier. Its headline rate for
businesses is just 12.5%, compared with a worldwide average of 23% according to
the Tax Foundation, opens new tab. That gap has drawn U.S. giants, who often
declare an outsized proportion of their international profit in the country.
Corporation tax brought in more than a quarter of overall government receipts in
2023, compared with less than a tenth in Britain, opens new tab.


Irish corporation tax overtakes income tax in 2024 as a source of government
revenue
The Irish Fiscal Advisory Council said, opens new tab that in 2022 just 10 large
companies accounted for 60% of corporation tax receipts, with three of the firms
contributing one-third of the total haul. The independent fiscal watchdog didn’t
name the companies, but the list likely includes some of the U.S. giants with
large presences in cities like Dublin or Cork, including Apple, Google owner
Alphabet (GOOGL.O), opens new tab, Facebook owner Meta Platforms (META.O), opens
new tab, drugmaker Pfizer (PFE.N), opens new tab and chip group Intel (INTC.O),
opens new tab.

The rest of the world has tried to make life harder for Ireland. The
OECD-brokered agreement, initially signed three years ago, had by June 2023
attracted 139 signatories, opens new tab, including all of the world’s major
economies. It had two elements. The first was a new digital taxing principle,
opens new tab that empowered countries to charge levies based on where revenue
gets generated, rather than where a company bases its operations. In theory,
that would allow France or Germany to claim some money from Meta or Alphabet,
even if the companies reported scant profit to Paris or Berlin.

The second element was a new so-called “minimum tax, opens new tab” of 15%,
which in theory should remove the incentive for tax havens to charge anything
less than that level. The OECD estimated that total profit booked by large
companies in low-tax jurisdictions, defined as countries with a sub-15% rate,
should fall by 80% as a result, implying that corporate tax avoidance would be
mostly solved.
As Chambers’ bumper budget shows, that clearly hasn’t happened. One big problem
for the OECD effort is that the United States hasn’t implemented the minimum
tax. Because so many of the world’s biggest companies are from the United
States, but currently declaring much profit abroad, the system as envisaged
doesn’t work without U.S. involvement. And with a divided Congress seeming
likely after the November elections, it’s hard to see much changing on that
front.
Another difficulty is that 15% is barely above Ireland’s 12.5% rate. The
implication is that a new minimum tax, even if implemented globally, might not
change companies’ incentives all that much. According to a person involved in
the OECD negotiations, Dublin managed to have the words “at least” removed from
the agreement, suggesting that the global rate might stay at a level that
Ireland can live with.
The other leg of the OECD plan is also bogged down. The new digital taxing right
is supposed to allow governments to get money out of technology giants with no
local physical presence. But so far, countries cannot agree on how those rules
should be implemented. Again, U.S. intransigence is a problem. Recent estimates
from the Joint Committee on Taxation suggest that this plank of the OECD reforms
could see the United States lose $57 billion in tax revenue over 10 years.
That’s a hard sell to any administration. And absent a deal on that front,
countries like France and Spain are likely to stick with pre-existing national
digital taxes instead, prompting a further tit-for-tat with Washington that
would ultimately leave Ireland’s current share of the pie untouched.
In theory, Ireland’s European neighbours could pile some pressure on Chambers
and Prime Minister Simon Harris. Brussels has in the past talked about bloc-wide
digital levies and other measures that could dent Dublin’s low-tax appeal. It’s
possible that growing fiscal problems in France and elsewhere could finally
force the rest of the European Union to lose patience with Ireland. But
successful EU-wide tax measures are rare, and it’s not clear that Brussels has
many other ways to bring Dublin into line.
The upshot is that Chambers and Harris can probably rest easy. The Irish
government must call an election before March 2025, which makes it a good time
for them to have lots of spare money sitting around. Good uses of the funds
include investing to solve the country’s chronic housing shortage or building an
underground metro service in Dublin. Splashing the cash is likely to anger
hard-up neighbours. But with the OECD process still stuck in the weeds, it’s not
clear why Chambers should care.

Seven of the 10 biggest companies in the world, measured by pre-tax profit, are
based in the United States
Follow @aimeedonnellan, opens new tab on X
(The author is a Reuters Breakingviews columnist. The opinions expressed are her
own.)
CONTEXT NEWS
The Irish government on Oct. 1 announced 10.5 billion euros of tax cuts and
spending increases for 2025. The budget also included longer-term plans on the
use of a 14-billion-euro back tax bill from Apple to improve the country’s
infrastructure.
The Apple back taxes are set to push Ireland’s surplus this year to 7.5% of
gross national income, according to the government. The figure will fall to 2.9%
in 2025.

For more insights like these, click here, opens new tab to try Breakingviews for
free.

Editing by Liam Proud and Oliver Taslic

Breakingviews
Reuters Breakingviews is the world's leading source of agenda-setting financial
insight. As the Reuters brand for financial commentary, we dissect the big
business and economic stories as they break around the world every day. A global
team of about 30 correspondents in New York, London, Hong Kong and other major
cities provides expert analysis in real time.

Sign up for a free trial of our full service at
https://www.breakingviews.com/trial and follow us on Twitter @Breakingviews and
at www.breakingviews.com. All opinions expressed are those of the authors.

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