- Ireland's headline 12.5% corporate tax rate — much lower than most industrialized nations — has been key to attracting many multinationals to the country.
- Corporate tax receipts have helped offset some of the coronavirus-fueled challenges for Ireland's economy, as shown in the budget.
- The tax rate and Ireland's taxation regime for multinationals has also drawn much criticism, typified by the infamous Apple tax case.
When Irish Finance Minister Paschal Donohoe delivered his bumper budget speech last month he was clear once again that the country's corporate tax rate would remain as is.
But there was an acknowledgment that "change is inevitable" on an international level, referring to OECD negotiations, and that Ireland would feel the impact of that.
"Agreement at the OECD level would present challenges for Ireland as changes to the international tax framework would see a reduction in the level of profits taxable here," he said.
"Failure to reach agreement at the OECD would also have negative consequences for the exchequer."
Ireland's headline 12.5% corporate tax rate — much lower than most industrialized nations — has been key to attracting many multinationals to the country, especially among tech giants with Apple, Google and Facebook having presences in the EU nation. Corporate tax receipts have helped offset some of the coronavirus-fueled challenges for Ireland's economy, as shown in the budget.
The tax rate and Ireland's taxation regime for multinationals has also drawn much criticism, typified by the infamous Apple tax case.
Negotiations continue at the international level through the OECD to establish comprehensive reforms of global taxation, including a new framework for taxing tech firms and establishing a minimum corporate tax base.
That mission aimed to come to some kind of agreement by the end of 2020 but was recently pushed out to mid-2021 with both the U.S. and Europe still jostling for position.
Manal Corwin, head of Washington National Tax at KPMG and a former Treasury Department official, told CNBC that the discussions are as much political as they are technical, with the pandemic making things even more difficult.
"The strategic bet is let's get as much of the technical underpinnings of both of these pillars done as possible and framed and comments in from the public and refined and so forth so when the ability and the capacity to return to getting a political agreement is there, then it can happen quickly," she said.
The tax reforms are made up of two pillars. Pillar one refers to the digital economy and could see profits taxed where customers are located. Pillar two refers to a minimum global tax rate which would disregard where firms are physically headquartered.
The OECD has positioned the two pillars as complementary and linked, but not everyone feels that way.
"If you look at the 137 jurisdictions around the table, there are those that are much more interested in pillar two and want pillar two to happen and will not sign on to pillar one unless pillar two comes along," she said.
Earlier this year, the U.S. hit pause on tax talks. Meanwhile, France has put the collection of its own digital services tax on hold to allow for international talks to reach some sort of conclusion. The European Union has also said it will start work again on its own bloc-wide tax if international efforts bear no results. If progress is stalled further, Europe may pick up that baton again.
This is typical of the political logjam that has been a feature of the discussions for a long time.
Peter Reilly, PwC Ireland tax policy leader, said that the end goal of tax reform remains the same, but the route to get there and the specifics are still to play for.
"The OECD does estimate that globally companies will pay more tax overall, but where this tax falls is up for discussion and negotiation," Reilly told CNBC.
"While the new proposals will certainly have an impact on Ireland, the alternative, no agreement and unilateral action, could indeed have a bigger impact," he said.
"From a corporate perspective, even if the rules have no impact on a company's tax bill, they could still impose a huge burden from an administrative perspective."
Failure in the OECD process could lead to the EU pulling the trigger on its own tax regime, creating a differing set of rules inside and outside the EU, which could raise trade tensions, he added.
"First and foremost, as a small open economy, Ireland will always be susceptible to any barriers to global trade and as such it would appear that a multilateral approach would be more beneficial," Reilly said.
Meanwhile, the Apple tax case hasn't gone away despite Ireland and Apple's legal victory against the European Commission in July. The Commission has opted to appeal that decision to the European Court of Justice in one last effort to claw back the 13 billion euros that it says Apple owes.