Taxing Times: Is Ireland still trending?
For companies with annual revenues of €750m+, Ireland’s cherished 12.5% corporation tax rate will increase to 15% in 2023. What does this mean for current US multinational hubs and future FDI?
In the summer of 2021, Ireland took on the world – or at least the Irish government did – in its opposition to the biggest international corporate tax reform for more than a century. By the time a deal was finally struck with the Organisation for Economic Co-operation and Development (OECD) in October, Ireland had secured what was generally seen as a good result: the new global minimum corporate tax (GMCT) would be 15% and, critically, be capped at that rate.
So, how did this situation arise and what does it mean for Ireland, which has long championed its low corporation tax of 12.5% – the lowest of any developed onshore economy – as a key magnet for inward investment? This rate was pivotal in transforming Ireland from a relative backwater to emerge first as the Celtic Tiger and then to become one of the world’s most prosperous countries in the 2020s, with an average annual salary of €49,000. A further measure of its success in attracting foreign investment can be seen in Irish corporate tax revenues, around 75% of which are generated by US companies.
Following years of discussion, the OECD finally got its act together in 2019, proposing that taxation rules be updated to accommodate digital products and services and that a new GMCT should be introduced to counteract companies shifting profits to jurisdictions with lower corporate tax rates.