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Achieving the global tax rate policy is dependent on getting the majority of the countries on board, through various means that can help them make compromises.
Following months of stalemate in its willingness to join the global tax deal, the Republic of Ireland has now decided to sign up to the minimum corporate tax rate of 15%. As reported by CNBC, the move marks a major milestone for Ireland whose current rate of 12.5% has done more good to the country’s economy in attracting businesses.
The proposal for a unifying global tax deal has long been in the works as major countries in the G7 and G20 agreed earlier this summer to join forces to tackle tax evasion and harmonize rules across the globe. Drawing on the economic fallout of the coronavirus pandemic, many companies are poised to move their corporate headquarters to regions with extremely low tax rates. This works as the current provisions allow firms to pay their taxes in areas where they have their corporate headquarters.
Under the new tax provisions, big multinationals will be required to pay their taxes in all countries where they operate, making the run into tax havens of no effect anymore. In the case of Ireland, the 15% corporate tax rate will only apply to firms with a turnover of in excess of 750 million euros. Smaller companies are bound to still benefit from the lower tax provisions.
“In joining this agreement, we must remember that there are 140 countries involved in this process and many have had to make compromises,” said Paschal Donohoe, Ireland’s Finance Minister, according to RTE. “But I also believe that the agreement government has agreed to sign up to today is balanced and represents a fair compromise reflecting the interests and input of the many countries involved in the negotiations.”
According to the Irish Department of Finance, this increased tax rate could cost the country a revenue worth 2 billion euros ($2.3 billion) a year, as reported by RTE.
Global Tax Rate Cut: A Compromise Needed by Majority
Achieving the global tax rate policy is dependent on getting the majority of the countries on board, through various means that can help them make compromises. The initial proposal stipulates a 21% base rate for all countries, however, a series of negotiations and re-consideration especially amongst the G7 countries have significantly pushed this rate lower.
From the “at least 15%” rate compromise agreed on to the current definitive rate of 15%, the deal now looks more appealing to countries like Ireland with cold feet. Hungary is still amongst the nations stalling the implementation of the deal. While the country’s minister of foreign affairs and trade, Péter Szijjártó admitted to the reasonable compromise that has been made across the board to lower the rate to 15%, he noted it would be easier for Hungary to join if a 10-year implementation plan were to be introduced. Hungary’s base tax rate for companies is fixed at 9% at present.
Despite the stalling, top proponents of the global tax deal, including France’s minister of finance, Bruno Le Maire believes the plan is just “one millimeter away” from being actualized.
“The key point is to have an agreement being adopted, no later than the end of this month, on the new international taxation system.,” he said in Paris, adding, “We could either next week during the Washington meetings, or at the G-20 meeting in Rome at the end of October, sign the final agreement under the international taxation system.”