Dáil Éireann Debate, Thursday - 13 July 2023
329. Deputy Pearse Doherty asked the Minister for Finance his Department’s projections of the increased corporation tax revenue generated in annual terms as a result of Pillar One of the OECD Agreement; and if he will make a statement on the matter. [35451/23]
View answerI understand that when the Deputy refers to increased revenue generated as a result of the OECD Agreement, he is referring to Pillar Two of that agreement dealing with the adoption of a global minimum effective tax rate of 15%.
In October 2021 Ireland, along with almost 140 other countries in the OECD/G20 Inclusive Framework, signed up to an historic agreement to reform the international tax framework as it applies to large corporate groups.
Recognising how multi-national enterprises (MNEs) across the globe now operate commercially and generate value, this significant reform will ensure that the international tax framework keeps pace with these developments in a coordinated way.
Building on the original Base Erosion and Profit Shifting (BEPS) project, the agreement contains a two-pillar solution to address the tax challenges arising from digitalisation and globalisation.
Pillar One will see a reallocation of 25% of residual profits to the jurisdiction of the consumer. Scope is confined to multinational groups with turnover in excess of €20 billion annually. Residual profit is profit greater than 10% of turnover. The threshold will reduce to €10 billion after 7 years.
Pillar Two of the agreement will see the adoption of a global minimum effective tax rate of 15% applying to multinational companies with global revenues in excess of €750m.
Ireland will retain its 12.5% corporation tax rate on trading profits for the 95% of companies in Ireland that are out of scope of the agreement.
Pillar Two will be implemented in Ireland largely via the EU Minimum Tax Directive, which was agreed in December 2022 and has a transposition deadline of the end of 2023. Work on implementing the Directive is well underway in my department.
It is important to recognise that the minimum corporate tax rate is only one element of the OECD Two Pillar agreement. Any projected changes to corporation tax yields following implementation must also take into account Pillar One, which provides for a reallocation of certain profits to market jurisdictions. It is expected that implementation of Pillar One will come at a cost to Ireland.
An initial estimate of the potential cost of implementation of both pillars of the OECD agreement in terms of reduced tax receipts was published in 2020 as being potentially in the region of €2 billion per annum - approximately 20% of CT revenue at that time. This remains as the estimate used for budgetary purposes currently as it continues to be very difficult to accurately estimate the full impact while so many aspects of the OECD agreement remain undecided. The outcome of these discussions, coupled with the future business decisions of multinationals, will have significant implications for our future corporation tax receipts – the scale of the effect will only become fully known with time.
My officials continue to keep the cost of the Agreement under review. As more detail emerges in the coming months, it is hoped that we will be in a position to publish revised estimates resulting from implementation of the agreement .
As indicated, Pillar One will come at a cost as some taxing rights are allocated to market jurisdictions but we believe that this is a price that is worth paying for the long term stability of the intentional tax framework.
