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Tech firms in Ireland like Google, Facebook to cough up more under new tax framework

Ireland’s low tax rate all these years managed to attract big tech companies like Facebook, LinkedIn, TikTok, Apple, and Google.

Ireland has agreed to a new 15 percent tax rate for multinational companies, ending 18 years as a low tax regime. “The Government has given approval for Ireland to sign up for the political agreement at the OECD (Organisation for Economic Co-operation and Development) Inclusive Framework on a new tax framework to address the tax challenges of digitalisation,” the Irish Finance Minister Paschal Donohoe said in a press release this week. The agreement will come into effect by 2023, the release stated. 

The two salient features of this agreement will see Ireland agree to a new global minimum effective tax rate (15 percent) for multinationals with global revenues in excess of €750 million along with a reallocation of a proportion of profits to the country where it is earned, the press release added.

A corporate tax rate of 12.5 percent will continue for companies with revenues less than €750 million. The Irish government said that this step was taken in view of the domestic economy and the thousands of SMEs (160,000) that operate in Ireland.

Ireland’s decision is significant as the country had been under tremendous pressure from the US and EU to increase the tax rate. The low tax rate managed to attract big companies like Pfizer, Intel, Facebook, LinkedIn, TikTok, Apple, Google, and Twitter. 

How did the Irish government sign up for the agreement? 

The 15 percent tax rate will be applicable to 56 Irish multinationals which employ nearly 100,000 people, and 1,500 foreign-owned MNEs based in Ireland that are providing employment to nearly 400,000 people, as per the Irish government. 

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The proposed changes may cost the Irish exchequer between €800m and €2bn a year, according to The Guardian

Ireland had earlier refused to join the OECD consensus along with nine other countries in July as there was no clarity on the proposed minimum tax rate. It was apprehensive about the language used in the agreement which said that the proposed tax rate will be “at least 15 percent”. 

It raised concerns that the language leaves the door open for tax rate hikes in the future, the Guardian reported. The Irish government sought assurances from the EU that it would not seek to increase the tax rate and the bloc has agreed to the same, the report added.

Ireland has now struck out ‘at least’ from the agreement, setting the rate at 15 percent precisely, the press release informed.

“We have secured the removal of ‘at least’ in the text. This will provide critical certainty for Government and industry, and the long-term stability and certainty to business in the context of investment decisions,” the finance minister declared. 

What happens next? 

OECD’s Inclusive Framework, which has 140 members, is meeting on October 8 to lay out the implementation plan for the provisions under the agreement and will be making an announcement towards the same. 

Will this lead to a flight of companies from Ireland?

The Irish government said that it was not concerned about the flight of multinational companies following the implementation of these rules. Irish FM Donohoe said: “I am confident that Ireland will remain competitive into the future, and we will remain an attractive location when multi-nationals look to investment locations”.

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The biggest blow to Ireland’s low-tax regime came when certain tax avoidance schemes were outlawed in 2014, The Guardian said in its report.

The scheme called double Irish resulted in multinationals paying as little as 1-2 percent tax of their revenue, a fraction of what they paid in the US (35%). It facilitated a transfer of taxable revenue of global corporations from an operating firm in Ireland to an Irish-registered firm in an offshore tax haven. Many major tech companies took advantage of this scheme including Apple and Google.

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