Photo taken in Dublin, Ireland
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Ireland has decided to sign a global agreement that will raise its corporate tax rate to 15%, which is a big change in its policy.
The G-7 and G-20 countries agreed at the beginning of the summer to join forces to fight tax evasion and harmonize the rules around the world. If implemented, the plan would force multinational corporations to pay taxes where they operate – not just where they are headquartered – and would require a minimum corporate tax rate of 15%.
The Republic of Ireland has one of the most attractive rates for companies in the world at 12.5% and has so far refused to join the plan. Various Irish governments had vigorously defended the low interest rate, arguing that it was a tool to attract businesses to a small economy.
On Thursday evening the Irish broadcaster RTE reported that the cabinet had approved a corporation tax increase from 12.5% to 15% for companies with a turnover of more than 750 million euros. The news was later confirmed by Ireland’s Treasury Secretary, Paschal Donohoe.
“When joining this agreement, we have to remember that 140 countries are involved in this process and have had to make a lot of compromises,” Donohoe said, according to the RTE.
“But I also believe that the agreement the government signed today is balanced and a fair compromise that reflects the interests and contributions of the many countries involved in the negotiations.”
The Irish Treasury Department estimates that joining this global deal would reduce the country’s tax revenue by € 2 billion ($ 2.3 billion) a year, according to the RTE. In addition, an opinion poll by the Irish Times showed that a majority of voters in Ireland believed that the government should not change its policies now.
Ireland’s change of heart, however, followed a revised text. A minimum tax rate of “at least 15%” was mentioned in the original agreement, but this has been updated to only 15% – a signal that this rate will not be increased at a later date. Ireland was also given assurances that it could keep the lower rate for smaller resident companies.
Speaking to CNBC on Wednesday, Minister of Foreign Affairs and Trade for Hungary, Péter Szijjártó, said that the initial talks mentioned a corporate tax rate of 21%, which is far from the country’s current rate of 9%. So the new value of 15% is somewhere in the middle, he said.
Hungary has yet to approve the global tax agreement. However, the minister said Budapest would be happy to join if a 10-year implementation deadline was agreed.
Meanwhile, France’s Finance Minister Bruno Le Maire, a vocal supporter of the global tax deal, told CNBC on Wednesday that a global tax deal was “a millimeter away” from being reached.
“The crucial point is that an agreement on the new international tax system is passed by the end of this month at the latest,” he said in Paris.
“We could sign the final agreement on the international tax system either at the Washington meeting next week or at the G-20 meeting in Rome in late October,” he added.