In July this year, the Organization for Economic Cooperation and Development (OECD) agreed that multinational companies must pay 15 percent taxes in the territories where they generate profits, instead of only where their tax headquarters are established. . However, at that time Ireland resisted and did not join the agreement.
It is a country that offers the opportunity to pay less money in taxes, which is why large technology companies such as Google, Facebook and Apple have been attracted to have their European headquarters in Dublin and thus carry out their activities on that continent.
So far, Ireland taxes multinationals with a turnover of more than 750 million euros per year with 12.5 per cent. But that is about to change, since, after spending years resisting, the country has agreed to join the international pact that seeks to increase taxes for these companies.
With the agreement, the 15 per cent rate will now apply to “56 Irish multinationals employing approximately 100,000 people, and 1,500 foreign-owned multinational companies based in Ireland employing approximately 400,000 people”.
Thus, Ireland’s status as a tax haven for multinationals is coming to an end, as is pressure and criticism from other European Union countries along with the United Kingdom, where higher corporate rates have been applied. . The 12.5% tax rate has been applied in Ireland since 1 January 2003.
Ireland had no choice but to accept, otherwise, it would lose influence in decisions of that caliber and would be left out of the important discussions of the OECD, in which 140 countries from all over the world participate, including Germany, Canada, the United States. , Japan, France, Italy and the United Kingdom.
Although Ireland accepted the agreement, it did so with a couple of conditions and clarifications. The first thing he achieved, after negotiating with the OECD, was to eliminate the text of the document that supposes a tax of “at least 15 percent”. Thus it established that the percentage of the tax in question will be invariable.
“The agreement establishes that the minimum effective rate for multinationals with an annual turnover of more than 750 million euros is 15 percent. We have ensured the removal of ‘at least’ in the text. This will provide critical certainty for government and industry, and will bring long-term stability and security to companies in the context of investment decisions, ”said Paschal Donohoe, Ireland’s Minister of Finance, at the release of the government.
Ireland has also established that multinational companies generating profits of less than 750 million euros per year will continue to be taxed at 12.5 per cent. It is the second lowest rate in the European Union, according to the latest report by the organization Tax Foundation.
“For more than 160,000 companies in Ireland with a turnover of less than 750 million euros a year, employing approximately 1.8 million people, there will be no change in the corporate tax rate of 12.5 per cent,” he said. Donohoe.
The impact of the agreement
While the increase from 12.5 to 15 percent may not seem like a big change, it is. With the deal, big tech companies along with a number of pharmaceutical firms, including Google, Apple and Facebook, Pfizer, Intel, LinkedIn, TikTok, IBM and Twitter, will pay much more in taxes than they currently pay.
Such is the importance of multinationals to the country’s economy, that figures from the Irish tax authorities released in May showed that just 100 companies accounted for almost the 80 percent of tax revenue.
The figures excluded sectors closed by the pandemic, such as hotels and travel, but showed Ireland’s dependence on multinationals for employment and income tax.
In Ireland, about 32 percent of all jobs in 2020 were in multinationals, and those employees contributed 49 percent of all employment taxes, compared to 27 and 44 percent, respectively. , which took place in 2019.
On the other hand, with the increase in taxes, approximately 130,000 million euros of tax revenue will be generated annually worldwide, which would help stabilize the international tax system.
“The agreement represents an important step towards solving the problems caused by the digitization of the economy, which resulted in the international tax framework struggling to adapt to the evolving business models of large multinational companies,” added Donohoe.
The resolution, which cost the Irish treasury between 800 million and 2 billion euros a year (according to government estimates) should come into force in 2023, if everything continues on the current course.