30/03/22

IRELAND: Corporate tax regime faces new threat from Biden budget proposals.

As published on irishtimes.com, Wednesday 30 March, 2022.

Ireland’s corporate tax regime could face a new threat from the latest budget proposals published in the US by president Joe Biden.

As part of an increase in taxes on business, the draft US budget proposes a new minimum tax rate of 20 per cent on the overseas earnings of big US companies, meaning they would pay a top-up in the US on the 15 per cent rate which the Irish Government has agreed to introduce as part of the OECD corporate tax deal.

The Biden administration had previously proposed a similar move, as part of a wider economic plan which did not pass Congress last year.

The president’s 2023 budget proposals restate his aim of increasing the main US corporation tax rate from 21 per cent to 28 per cent as one of the revenue raising measures to fund increased spending.

As part of this, the budget documents propose that the minimum rate which big US companies with turnover in excess of $850 million would pay on their overseas earnings – the so-called Gilti rate – would be set at 20 per cent, up from 10.5 per cent now.

The plan, which also proposes a new minimum tax on taxpayers with wealth of over $100 million, faces a tough passage through Congress, which must approve it if it is to be enacted.

“An increase in the Gilti rate to 20 per cent would represent a significant premium on the proposed global minimum tax rate of 15 per cent and would not be good news for Ireland,” according to Peter Vale, international tax partner at Grant Thornton in Dublin.

“However much uncertainty remains as to whether this will get passed by Congress in the current proposed form.”

Previous proposals by the Biden administration on corporate tax were part of a Build Back Better bill, which failed to get through Congress late last year. Moderate Democrats in the Senate are opposed to plans for higher taxes and it remains to be seen how the latest budget proposal, together with plans to implement the OECD rules in the US tax code, progress in the months ahead.

Minister for Finance Paschal Donohoe agreed last year that Ireland would move ahead and increase the 12.5 per cent corporate tax rate to 15 per cent for big companies, in line with the OECD plan. On Wednesday, the Department of Finance said it was working to implement this plan with the French EU presidency.

While draft agreement was reached among the 140 OECD countries, it is unclear whether the Biden administration can get the deal through Congress.

At a recent EU finance minister’s meeting Poland, Sweden, Estonia and Malta blocked immediate agreement on implementing the new 15 per cent deal in the EU, though the issue will be discussed again at the next meeting.