While more than 100 countries have agreed to support a global minimum tax of 15%, Ireland – which has enjoyed decades of low corporate tax rates – is one of a handful of dissenters.
The corporate tax rate in Ireland is 12.5% ââ- lower than the proposed overall minimum rate of 15%. The United States, for comparison, currently has a corporate tax rate of 21%, although President Biden has proposed increasing it to 28%.
A global minimum tax applies only to a country’s profits abroad and is designed to prevent the world’s largest companies from dodging their tax obligations by relocating.
If a business pays a tax rate lower than the overall minimum in a foreign country, it will owe the difference in the country where it is headquartered. The policy could also affect some large companies by requiring them to pay taxes in countries where their goods and services are sold, and not just where they are physically present.
MINIMUM WORLD TAX OF 15% OF BIDEN SUPPORTED BY 130 COUNTRIES, TERRITORIES
Ireland implemented its low rate of 12.5% ââin 2003, and it attracted many multinational companies and in turn supported the country’s economy.
Its success in wooing large corporations was documented in a 2016 memo from the European Commission, which cited globalization as a plausible explanation for a major upward revision Ireland reported in its GDP.
In 2016, Ireland revised its 2015 GDP growth rate to 26.3% from 7.8%.
“This is mainly due to the relocation to Ireland of a limited number of large economic operators”, we can read in the note.
The Organization for Economic Cooperation and Development made similar comments.
âThe main reason for Ireland’s particularly high GDP growth rates is that in recent years, attracted largely by low corporate tax rates, a number of large multinational corporations have relocated their economic activities, and more specifically their underlying intellectual property. , in Ireland, “the group wrote in a report.
Ireland is cited as having one of the highest GDP per capita in Europe, a measure that has been flattered by the profits of around 1,500 multinational companies.
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Chris Edwards, director of tax policy studies at the Cato Institute and editor of Downsiz ing Gov ern ment .org, told FOX Business that the 15% global minimum tax is unfair for countries like Ireland who have effectively reduced their rates.
âThe global tax deal is unfair to small countries like Ireland which have successfully continued their economic development by adopting an efficient low-rate corporate tax,â said Edwards. “The global tax deal can be interpreted as the fact that big, powerful countries are bullying small countries that have made sensible tax reforms for growth.”
Edwards, who criticizes the tax, noted that corporate tax rates have fallen significantly in major countries since the 1980s, leading to increased compliance and investment.
Some Republican lawmakers critical of the proposal have made similar remarks.
Senator Pat Toomey, R-Pa., Called the proposal an attempt to implore other countries to “punish their workers and their businesses with their own tax increases.”
“The ‘race to the bottom’ is how the Biden administration describes the competition among developed countries to achieve a tax code that attracts investment and maximizes growth. It is a race we should be leading, not trying. prevent, “Toomey said in a statement. declaration.
The Tax Cuts and Jobs Act of 2017 significantly lowered the corporate tax rate in the United States from 35% to 21%.
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As previously reported by FOX Business, 130 countries and territories have expressed support for the measure.
Besides Ireland, several other countries have yet to agree, including Estonia, Hungary, Peru, Barbados and Kenya.
Implementation of the measure in the United States will require congressional approval. Leading Republicans have already signaled that they will not support a deal that fails to protect American workers and the U.S. tax base.