Tech

Ireland signs global deal calling for tax avoidance restraint

Ireland, a low-tax country that is the European headquarters of some of the leading US technology companies, A minimum tax rate of 15% to tax corporate profitsFacilitates the path to a final agreement on a review of taxation methods for multinational corporations around the world.

Ireland’s policy changes have long negotiated new ways to tax international companies to clear the last major hurdles needed for broad consensus, reduce avoidance and split tax revenues, 140 governments and jurisdictions. Ahead of the Friday meeting between them, what they say is a fairer way. The group is likely to support a final agreement aimed at implementation in 2023.

Ireland A few holdouts When the outline of the global agreement was settled in July. The agreement was promoted by the United States It aims to review taxation methods for multinational corporations and is the culmination of many years of efforts to put pressure on tax avoidance arrangements.

If necessary changes are made to domestic law and international treaties, they will be the largest changes in international taxation in the first century. In addition to setting minimum tax rates that many of the world’s largest businesses are likely to pay more taxes, existing tax revenues are split between governments, with more income in countries where companies have customers. Will come to get. This overturns the long-standing principle of international taxation that profits are taxed where value is created, where companies traditionally existed physically.

Ireland is small, but it plays a huge role in the strategies used by businesses in the United States and elsewhere to reduce global taxes.Most of the largest tech companies in the United States Headquartered in Europe in Ireland, And the country is also fascinated by the largest US pharmaceutical companies.

Ireland’s decision to raise the corporate tax rate from 12.5% ​​after the agreement is implemented is a concession to major allies, especially the United States.

Google’s European headquarters in Dublin. Irish authorities expect multinationals to continue to use the country as a base.


Photo:

Zuma Press

Ireland’s Treasury Minister Paschal Donohoe said:

Tax negotiations date back to 2013. The government has begun looking for ways to limit tax avoidance in response to a new breed of digital giants who can register their intellectual property without having to be close to consumers. From there they benefit — almost everywhere.Negotiations got stuck towards the end

Donald TrumpWas revived earlier this year when U.S. Treasury Secretary Janet Yellen prioritized securing the world’s lowest tax rates and provided an easy way to share existing European-backed tax revenues. bottom.

Just recently Wednesday, Yellen urged one of the few other holdouts, the Estonian counterpart, to support the deal in a telephone conversation.

The broad political agreement expected on Friday is an important step forward, but not a final move. The implementation will be a challenging dance as the US monitors whether European countries will eliminate digital taxes as promised and other countries in the world are seeing what the US Congress can pass. prize.

And the important details have not yet been decided. Among them are ways to prevent countries from circumventing restrictions on low taxation by providing tax-exempt subsidies to businesses.

Large tech companies have supported a tax review, even if it means paying more taxes. This is primarily to help eliminate the threat of overlapping national tax patchwork that already exists in France and the United Kingdom.Close to triggering a new trade war between America and Europe..

Companies that rely on intellectual property can focus their profits on Ireland rather than the high-tax countries in which consumers live, which is a source of frustration for other governments. These benefits are diminishing, and US policymakers are closely watching what, if any, benefits will remain for foreign profits and headquartered companies.

Persuading Ireland to sign the Coordinated Universal Time is Yellen’s victory. Promoting the world’s lowest tax rates As part of the Biden administration’s corporate tax hike plan. The more other countries agree to raise the tax rate, the less impact the US tax increase will have on the location of the company.

Alexandra Ramanna, a spokeswoman for the US Treasury, said:

The Irish government has won what it considers to be an important concession. The July summary agreement suggests that the minimum tax amount is “at least 15%” and could be raised further. The Irish government said “at least” had been removed.

Apple’s European headquarters in Cork. The Irish corporate tax rate has remained at 12.5% ​​since 2003.


Photo:

Niall Carson / PA / Getty Images

This represents a minor setback for the United States, which hoped to pave the way for higher interest rates in the future and claimed a minimum interest rate of 21%, but already 21% due to resistance from Congressional Democrats. The US minimum interest rate is low. .. As international negotiations continue, the United States has not publicly discussed the details.

The expanded minimum tax path in Congress remains uncertain. The Democratic Party of the House of Representatives has proposed a minimum tax rate of 16.6% on foreign incomes of US companies, but there are some technical details that are easier for companies than the current rules. Business groups and some Democrats argue that the United States should be cautious about increasing minimum taxes before other countries adopt it.

These international tax provisions are wrapped in a broader legislative struggle over President Biden’s agenda.Some Democrats Proposed a $ 3.5 trillion 10-year plan, but is now shrinking its target To accommodate their most conservative members.

Irish officials expect multinationals to continue to use Ireland as their base of operations. Still, taxes remain low.

“I am confident that Ireland will continue to be competitive and attractive,” said Donoho.

Ireland’s corporate tax rate has remained at 12.5% ​​since 2003, evolving from previous tax incentives designed to attract foreign companies to the then relatively poor countries at the western end of Europe.

He argued that low taxes were needed to make up for the disadvantages of that small size. Information technology has mitigated these disadvantages, and many large US companies can now sell their services from locations throughout Europe and Ireland.

Over the years, more multinationals have been attracted to a large pool of skilled and workers and the legal framework and language familiar to American companies.

The Irish government’s decision to join the global agreement is unpopular with voters and fears that Ireland will be unattractive to US companies offering many high-paying jobs. Driven by exports from US technology and pharmaceutical companies, Ireland’s economy grew 5.9% last year, but has shrunk in other wealthy countries.U.S. economy 3.4% reduction..

In a recent Irish Times poll, 59% of those surveyed wanted to keep the tax rate at 12.5%, with only 26% supporting participation in the Coordinated Universal Times.

Ireland and taxes

Details on how low company taxes changed the country, selected by the editor.

According to the American Chamber of Commerce Ireland, more than 800 US companies operate domestically, hiring 180,000 directly and maintaining an additional 144,000. Its presence has grown rapidly over the last decade, with direct employment increasing by 44%.

Mark Redmond, chief of the Chamber of Commerce, said Ireland is unlikely to lose US investment as a result of the move, preventing US companies from raising the minimum tax rate in the coming years. He said he appreciates the role of the Irish government. ..

“The reaction from conference rooms across the United States is that Ireland has done a good job with this agreement,” he said. “Irish influence on the process is very positive.”

For Kieran McQuinn, a research professor at the Institute of Economic and Social Studies in Ireland, the potential impact of tax reform on the country’s economy can be significant.

But he said there was little evidence that U.S. investment in Ireland had declined, even as the possibility of the world’s lowest tax rate increased this year, and U.S. companies have no intention of raising more income from the government. He said it would reassure him.

“Irish authorities are responding to international pressure,” he said. “If this is a clear deviation from domestic policy, it will be another matter. I don’t think it is. The Irish authorities are in a terrible panic.”

Similar concerns about their ability to attract foreign investment are behind Estonia and Hungary hesitating to sign up for the agreement. They are also calling for a change in the July agreement to protect the economy. Kenya, Nigeria and Sri Lanka also refused to sign the July agreement.

Write to Paul Hanon paul.hannon@wsj.com And Richard Rubin richard.rubin@wsj.com

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Ireland signs global deal calling for tax avoidance restraint

Source link Ireland signs global deal calling for tax avoidance restraint

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