Ireland said Thursday it would join an international agreement that sets taxes on profits for multinational corporations at a minimum rate of 15 percent. This is a major shift for the country that is the European headquarters for many large US pharmaceutical companies, as well as tech firms, including Google, Apple, and Facebook.
An increase from Ireland’s current 12.5 percent to 15 percent may not seem that large by itself. The so-called Organization for Economic Cooperation and Development (OECD) Inclusive Framework agreement, outlined in July, is actually a two-pillar plan aimed at helping end tax avoidance and making international tax rules fairer and more transparent. The OECD has estimated that a 15 percent tax rate would generate some $150 billion in global tax revenue annually and would help to stabilize the international tax system.
Ireland signed on to the deal ahead of a Friday meeting at the OECD among the 140 countries that have been negotiating its terms for several years. The plan calls for global companies to pay taxes in countries where their products or services are sold, even if they don’t have a physical presence there, and would apply to multinational companies with revenues above €750 million (about $867 million). For companies with revenues below €750 million, the 12.5 percent rate would remain in effect in Ireland.
Over the past several decades, Ireland has served as a tax shelter for many large tech companies, thanks to its low corporate tax rate. Companies typically create Irish subsidiaries of their companies that license their intellectual property, on which the subsidiary pays royalties. Some 800 US companies have operations in Ireland, according to the American Chamber of Commerce Ireland, employing about 180,000 people. Apple opened its first plant in Ireland in 1980 and now employs some 6,000 people on its campus in the city of Cork. Facebook established its international headquarters in Dublin in 2008, and Google opened its European headquarters in Ireland in 2003.
Irish finance minister Paschal Donohoe said in a statement Thursday that the agreement will “address the tax challenges of digitalisation.” Donohoe added that he believes companies will still choose to locate their headquarters in Ireland.
“I am confident that Ireland will remain competitive into the future, and we will remain an attractive location and ‘best in class’ when multi-nationals look to investment locations,” Donohoe said. “These multinational enterprises support our economy with high value jobs, and at the same time, Ireland provides a stable platform and a long proven track record of success for MNEs choosing to invest here.”
If the OECD agreement moves forward, its provisions are expected to take effect in 2023.