Ireland is giving up the tax rate of 12.5 percent with which it previously lured international corporations.
(Photo: mauritius images)
London For years the corporate tax rate of 12.5 percent has been a staple of Irish identity – much like a pint of Guinness. Nothing could dissuade the government in Dublin from this symbol of its economic policy. Any attack from other EU capitals was outragedly rejected. When it came to their tax rate, the Celtic model Europeans only focused on their national self-interest.
Now the taboo is broken. Ireland has agreed to support the global minimum tax of 15 percent. The government only had one condition: small companies with an annual turnover of less than 750 million euros will continue to pay only 12.5 percent corporate tax on the Emerald Isle. From the OECD’s point of view, this is a good compromise: the reform is ultimately aimed at multinational corporations such as Amazon and Microsoft.
The main reason for the Irish U-turn was pressure from the USA. Dublin has never refused anything to its great ally – and even less to Ireland’s friend Joe Biden. But one wonders why the insight took so long. Because the move away from the 12.5 percent was overdue.
A good workforce is now more important than low taxes
Sure: Historically, the low tax model was a decisive factor in transforming the underdeveloped agricultural country into one of the most modern nations in Europe. It has attracted hundreds of US corporations and made Ireland a bridgehead for the European market.
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However, the tax rate has long ceased to be of central importance for economic development as it used to be. The technology, pharmaceutical and finance cluster that emerged in Ireland has now developed its own gravity. Much more important than the level of the tax rate are the well-trained workforce and the infrastructure in the country.
There is therefore no risk that the increase to 15 percent will now trigger a large emigration movement. The new tax rate will not affect the country’s competitiveness at all. The advantage over its large neighbor Great Britain will be even greater, because the corporate tax rate there is to rise from 19 to 25 percent from 2023.
Some politicians in Ireland secretly hope that the OECD reform will fail in the US Congress. But it would be a mistake to withdraw the concession again. Ireland should stick to the 15 percent in any case. The taboo is finally broken.
More: Ireland agrees to global tax reform.