The country’s low corporate rate has lured thousands of MNCs
While more than 100 countries have agreed to support a 15% global minimum tax, Ireland – which has taken advantage of a low corporate tax rate for decades – is one of a handful of holdouts.
Ireland has a corporate tax rate of 12.5% – lower than the proposed global minimum rate of 15%. For comparison, America’s current corporate tax rate is 21% – although President Biden has proposed raising it to 28%.
A global minimum tax applies only to a country’s foreign profits and is designed to prevent the world’s largest companies from evading tax obligations by offshoring.
If a company is paying a tax rate lower than the global minimum in a foreign country, the difference will be in the country where it is headquartered. This policy will potentially affect some major companies, as they pay taxes in the countries where their goods and services are sold, not just where they are physically present.
Biden’s 15% global minimum tax backed by 130 countries, territories
Ireland implemented its low 12.5% rate in 2003, and this attracted a number of multinational corporations and in turn strengthened the country’s economy.
Its success in attracting major companies was documented in a 2016 memorandum to the European Commission, who quoted Globalization is a plausible explanation for a major upward revision that Ireland reported in its GDP.
In 2016, Ireland revised its 2015 GDP growth rate from 7.8% to 26.3%.
“This is mainly due to the relocation of a limited number of large economic operators to Ireland,” the memo read.
Organization for Economic Development and Cooperation Made a similar comment.
“The main reason for the particularly high Irish GDP growth rate lies in the fact that in recent years, attracted in large part by low corporation tax rates, many large multinational corporations have shifted their economic activities, and in particular from their underlying intellectual property, to Ireland,” the group wrote in a report.
Chris Edwards, director of tax policy studies at the Cato Institute and editor of Downsize Government.org, told Granthshala Business that a 15% global minimum tax is unfair to countries like Ireland that have efficiently lowered their corporate valuations.
“The global tax deal is unfair to small countries like Ireland, which have successfully driven economic growth by adopting an efficient low-rate corporate tax,” Edwards said. “The global tax deal can be interpreted as big, powerful countries threatening smaller countries that have made sensible pro-growth tax reforms.”
Edwards, who is a critic of the tax, noted that corporate tax rates have largely fallen in major countries since the 1980s, leading to increased compliance and investment.
Some Republican lawmakers who are critical of the proposal have raised similar issues.
Sen. Pat Tommy, R-Pa. characterized the proposal as an attempt by other countries to “punish their employees and businesses with their own tax increases”.
“Race to the bottom” is the way the Biden administration describes competition among developed countries to achieve a tax code that attracts investment and maximizes growth. This is a race we need to stop. Shouldn’t try.” Statement.
The 2017 Tax Cuts and Jobs Act dramatically reduced the US corporate tax rate from 35% to 21%.
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As previously reported by Granthshala Business, 130 countries and territories have indicated support for the measure.
In addition to Ireland, several other countries, including Estonia, Hungary, Peru, Barbados and Kenya, have yet to consent.
Implementing the measure in the US would require Congressional approval. Top Republicans Have Already Done signal That they would not support a deal that does not protect American workers and the American tax base.