20/07/22

INTERNATIONAL TAX: US can't deliver tax deal Janet Yellen convinced Paschal Donohoe to support.

As published on independent.ie, Wednesday 20 July, 2022.

Ireland is now backed into a corner on a global corporate tax deal that may never be adopted by the US.

Democrat US Senator Joe Manchin has put the brakes on the accord, saying it could harm American multinationals.

Hungary, which lodged an 11th hour veto on part of the deal – a 15pc minimum tax on multinationals – is the last EU hold-out, but may soon get on board.

Hungary’s EU minister Janos Boka said yesterday that he aims to unlock millions of euros in EU aid to his country by the end of August.

The European Commission had put a stay on around €6bn in pandemic grants and €21bn in regular EU funding to Hungary over concerns about corruption, media freedom and judicial independence.

A Commission decision to release similar funding to Poland last month led to the country’s U-turn on the tax.

If Budapest does the same, Ireland will be unable to back out – despite it leading to US multinationals paying slightly more tax in Ireland than they do at home.

The 15pc tax rate is not due to come into force until 2024, although delays on a parallel deal to shift taxing rights on the largest multinationals to other countries may put paid to that timeline.

The Department of Finance estimates that part of the deal could cost the Exchequer €2bn a year once it is implemented.

But the Organisation for Economic Cooperation and Development ( OECD), which steered both deals through last year, has recently admitted to delays in working out the details.

“It’s a bit like the Paris agreement on climate change. Everybody signs up to it but is everybody committed?” said Martin Phelan, head of tax at the Irish arm of global law firm Simmons & Simmons.

“Personally, I just don’t think [the deal] will come into play because nobody envisioned the war in Ukraine and how long that may well go on.

“We’re in a different world now with high inflation and recession. I think that a lot of governments are going to be thinking much more nationalistically. They may not want to implement any radical changes during a time of uncertainty.”

That was Hungary’s argument when it unexpectedly turned against an EU proposal for a 15pc minimum tax rate last month.

All EU countries had signalled their support for the tax last year following painstaking negotiations by OECD, which eventually got 137 countries on board.

Finance Minister Paschal Donohoe told an American Chamber of Commerce event this month that the EU and US were “essential” to the “critical mass” of countries required to get a deal through.

He said he had discussed the matter with US Treasury Secretary Janet Yellen at a meeting in Washington in June.

“While there are challenges to implementation on both sides of the Atlantic, each of us are optimistic that agreement on the two pillars of the OECD agreement will be reached and will be implemented,” he said at the American Chamber event on July 1.

“I firmly believe that it is in our interest for this to happen. The rest of the world is watching this process.”