Ireland spins global tax mess into $28 bln of gold

Haven on earth. Jack Chambers has an unusual problem for a finance minister: too much money. Irishman last week said he expected a 24-billion-euro budget surplus in 2024, thanks to an Apple  back tax bill and ballooning receipts from or large U.S. multinationals.

If recent efforts to clean up global corporate tax system h worked, Chambers’ happy predicament shouldn’t be possible. Organisation for Economic Co-operation and Development brokered a landmark deal in 2021, which was supposed to reduce incentives for corporate profit shifting to low-tax countries like Ireland, and end race to bottom on global rates. Luckily for Dublin, re’s little sign of anything changing.

Ireland’s bulging coffers this year are, mittedly, unusual. 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 sweeart historic tax deal. Yet Ireland, which didn’t want money, would still be comfortably in surplus without iPhone maker’s cash. International Monetary Fund expects Emerald Isle to have a positive budget balance for many years.

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

Irish Fiscal visory Council said that in 2022 just 10 large companies accounted for 60% of corporation tax receipts, with three of firms contributing one-third of total haul. independent fiscal watchdog didn’t name companies, but list likely includes some of U.S. giants with large presences in cities like Dublin or Cork, including Apple , Google owner Alphabet, Facebook owner Meta Platforms, drugmaker Pfizer and chip group Intel.

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

second element was a new so-called “minimum tax” of 15%, which in ory should remove incentive for tax havens to charge anything less than that level. 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 OECD effort is that United States hasn’t implemented minimum tax. Because so many of world’s biggest companies are from United States, but currently declaring much profit abro, system as envisaged doesn’t work without U.S. involvement. And with a divided Congress seeming likely after November elections, it’s hard to see much changing on that front.

Anor difficulty is that 15% is barely above Ireland’s 12.5% rate. 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 OECD negotiations, Dublin managed to have words “at least” removed from agreement, suggesting that global rate might stay at a level that Ireland can live with.

or leg of OECD plan is also bogged down. 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 Joint Committee on Taxation suggest that this plank of OECD reforms could see United States lose $57 billion in tax revenue over 10 years. That’s a hard sell to any ministration. And absent a deal on that front, countries like France and Spain are likely to stick with pre-existing national digital taxes inste, prompting a furr tit-for-tat with Washington that would ultimately leave Ireland’s current share of pie untouched.

In ory, Ireland’s European neighbours could pile some pressure on Chambers and Prime Minister Simon Harris. Brussels has in past talked about bloc-wide digital levies and or measures that could dent Dublin’s low-tax appeal. It’s possible that growing fiscal problems in France and elsewhere could finally force rest of European Union to lose patience with Ireland. But successful EU-wide tax measures are rare, and it’s not clear that Brussels has many or ways to bring Dublin into line.

upshot is that Chambers and Harris can probably rest easy. Irish government must call an election before March 2025, which makes it a good time for m to have lots of spare money sitting around. Good uses of funds include investing to solve country’s chronic housing shortage or building an underground metro service in Dublin. Splashing cash is likely to anger hard-up neighbours. But with OECD process still stuck in weeds, it’s not clear why Chambers should care.

Context News

Irish government on Oct. 1 announced 10.5 billion euros of tax cuts and spending increases for 2025. budget also included longer-term plans on use of a 14-billion-euro back tax bill from Apple to improve country’s infrastructure. Apple back taxes are set to push Ireland’s surplus this year to 7.5% of gross national income, according to government. figure will fall to 2.9% in 2025.