Davos WEF
Davos WEF

Trump is changing the mood on tax in Europe, says Ireland’s finance chief

Key Points
  • President Donald Trump is making the case for lower corporate taxes and Europe should pay attention, Irish Finance Minister Paschal Donohoe told CNBC.
  • The minister defended his country's corporate tax rate of 12.5 percent.
Irish Finance Minister Paschal Donohoe at the World Economic Forum's annual conference in Davos, Switzerland, on January 26, 2018.
Simon Dawson | Bloomberg | Getty Images

Leaders of major economies like President Donald Trump are making the case for lower corporate taxes and Europe should pay attention, Irish Finance Minister Paschal Donohoe told CNBC at the World Economic Forum on Friday.

Asked if he believed Trump was setting an example on tax policy, Donohoe was positive.

"Do I believe the mood is changing on corporate tax globally? The answer is yes," he said.

"You have to look at what President Trump has done, you have to look at the state of the U.K., you have to look at what President Macron said earlier in the week," he said, referencing the French president's Davos speech in which he proposed cutting some of France's infamously high taxes.

Competitiveness is not just the prerogative of larger countries, says Ireland's finance minister

In late December, a Republican-led U.S. Congress passed the Tax Cuts and Jobs act, overhauling the U.S. tax system and slashing corporate taxes from 35 to 21 percent. The move, Donohoe said, was making European leaders think again about their own corporate tax propositions.

Ireland is something of a poster child for economic recovery, having pulled itself out of dire financial straits after 2008 through a combination of extensive austerity, a bailout program and the creation of an ultra low-tax investment environment.

At 12.5 percent, its corporate tax rate is among the lowest in the EU. American multinationals alone have more than 700 operations in Ireland, a testament to the policy's success. By 2014, the country's GDP growth rate had rebounded to 4.8 percent from a severe contraction between 2008-09.

We've seen increased financial services investment, says Ireland's finance minister

The tax policy has come under fire, however, with Ireland accused of enabling tax avoidance for multinationals. In a high-profile 2016 case, Apple was ordered to pay the country a record-breaking $15.5 billion after a ruling by the European Commission found that a "sweetheart" tax deal between Apple and Ireland's tax authorities broke EU laws.

"Competitiveness is not just a prerogative of larger countries," Donohoe argued, defending his country's tax regime. "Small open economies are entitled to take choices to ensure we are competitive and create jobs, and corporate tax certainty is part of our competitive proposition."

"In terms of future changes in Irish corporate tax policy, there will be no change in the rate," he said emphatically. "It is 12.5 percent, and will neither go up nor go down. We will continue to protect and maintain that while making the changes we know need to be made."

Correction: This piece has been edited to remove an incorrect reference to Ireland having the lowest corporate tax rate in the EU.