Biden's pledge to hike US corporation tax to 21% threatens to re-open controversy for Ireland

The Irish Government had only reluctantly agreed as recently as late 2021 to give way to international pressure and hike from 12.5% to 15% the tax rate levied on  large companies and multinationals

President Joe Biden delivers the State of the Union address where he told a joint session of Congress at the US Capitol that 'big companies now have to pay a minimum of 15%'.

President Joe Biden has put the skids under the months-old 15% global corporate tax deal which now threatens to re-open the controversy over multinationals and their tax bills that the Government here had hoped had gone away. 

In a State of the Union address on Thursday night, Mr Biden re-opened the row over big corporates, pledging to hike the 15% minimum tax rate to a new higher rate of 21% for large US companies. The pledge threatens to torpedo the international agreement over multinationals that Ireland had reluctantly agreed to in late 2021. 

It comes also only 20 months after Mr Biden's White House and US legislators had endorsed the new global regime.  

In late 2021, then Finance Minister Paschal Donohoe said the Government had agreed to give way to international pressure brought by the US and the large European economies, in particular, when it agreed to hike to 15% from 12.5% the rate that the State would tax the profits of large companies and multinationals.  

Mr Donohoe said at the time that the concession was a "pragmatic" decision. It followed long years of an initiative led by the Organisation for Economic Cooperation and Development which was driven by Mr Biden's White House and the big European governments that were seeking greater shares of the multinational tax pie for their own exchequers. 

The Government hoped at the time the agreement would lift the international spotlight from Ireland's favourable tax dealings that had helped lure huge amounts of investments from multinationals into Ireland via the IDA.   

President Biden has now re-opened the controversy. "Thanks to the law I wrote and signed, big companies now have to pay a minimum of 15%," the president told Congress in the State of the Union speech. 

He said:

But that’s still less than working people pay in federal taxes. It’s time to raise the corporate minimum tax to at least 21% so every big corporation finally begins to pay their fair share. 

The pledge takes on even more significance in this US election year.   

Ireland's 12.5% corporation tax rate had been in place for almost three decades. It was widely acknowledged to have anchored the prosperity across the island on the basis that it attracted US tech and pharma multinationals, including Apple, Google, Microsoft, Pfizer, and Johnson & Johnson, to set up substantial head offices in the State. 

The stakes remain high for Ireland because a handful of US multinationals account for the lion's share of the almost €24bn the Government collects in annual corporation tax receipts.  

A month after the Government signed up to the deal, US Treasury Secretary Janet Yellen on an extended visit to Dublin had told a media gathering alongside Mr Donohoe that she had not cajoled Ireland over the new global accord. 

She told reporters that she had held talks earlier that year in 2021 to try to understand Ireland's position, adding that the new global accord served the interests of Ireland and all countries. 

Many economists said that striking a deal would take the focus off Ireland for some time, but they also warned that the Government, by conceding the principle of raising the 12.5% tax rate, could store up problems should the international controversy over multinationals and their tax bills be re-opened. 

Mr Donohoe at the time said the agreement was "a fair compromise" which meant that most Irish companies would continue to pay the 12.5% rate because their annual turnover was below the new OECD threshold that applied for the new and higher rate of 15%. 

'Unworkable'

Goodbody chief economist Dermot O'Leary said the significance of Mr Biden's pledge on Thursday night should not be downplayed. "The US has to be part of any global tax deal for it to be a global tax deal. And the biggest companies are American. For them, this makes the deal unworkable, in my view," Mr O'Leary said.  

"This means that painful negotiations will have to be re-opened on this issue, but it is hard to see much progress being made in this election year. We do not know who the next US president will be, but we do know that Donald Trump is not an advocate for multilateral deals," he said.  

"Even though Ireland was against raising its corporate tax rate, a deal which led to only a small increase in the corporate tax charge and one that reduced the risks of moves towards tax harmonisation and digital taxes was seen as positive. It appears that these risks may be returning," the chief economist said.