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Western Europe / Ireland

Biden’s proposed tax changes spark concerns for Irish investment

The Biden administration is proposing a global minimum corporate tax rate of 21% that could have a significant impact on Ireland’s investment attractiveness.

Ireland’s Finance Minister Paschal Donohoe has admitted that US plans to introduce a global minimum corporation tax rate could have “a very meaningful effect” on corporate tax policy in Ireland. Ireland’s current corporate tax rate of 12.5% was introduced in 2003. The country has since become a hot spot for US-based multinationals including Google, Facebook, Microsoft, Pfizer and Johnson & Johnson.

The new measures would mean that if a US-based company paid tax at the lower Irish rate, the US could top up that company’s tax in its jurisdiction to bring it to the global minimum, therefore eradicating the tax advantage of establishing operations in Ireland. The Biden administration is currently planning to raise corporate taxes in the US and the new regulations will ensure it will not be undercut by other countries.

In fiscal plans published in April 2021, Donohoe predicted Ireland will lose €2bn ($2.4bn) in annual corporation tax collections by 2025. “Small countries such as Ireland need to be able to use tax policy as a legitimate lever to compensate for advantages of scale, resources and location enjoyed by larger countries,” he stated.

The proposed changes build on a project being led by the OECD focused on stimulating economic progress and world trade. Its base erosion and profit shifting project began in 2013 and aims to stop tax avoidance strategies that exploit gaps and mismatches in tax rules to avoid paying tax.

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Naomi Davies

Naomi Davies

FDI consultant

Naomi Davies is an FDI consultant at Investment Monitor, with expertise in location benchmarking and cross-border investment.