Ireland should push back against a minimum global corporation tax rate that may become a masterclass in the law of unintended consequences.

As Paschal Donohoe, Ireland’s finance minister indicates, the country will resist attempts to amend the global tax system.

Following several years of talks with the Organisation for Economic Co-operation and Development (OECD) and around 140 countries, its now says it hopes to reach an agreement by the middle of this year.

The OECD’s plans have also been bolstered by support from U.S. President Biden’s administration of a minimum global corporate tax rate.

U.S. Treasury Secretary Janet Yellen said last month: “We’ve had a global race to the bottom in corporate taxation and we hope to put an end to that.”

Indeed, Ireland should resist the U.S.-backed calls from the OECD for a minimum global corporation tax.

The plans are imprudent, and the lack of flexibility could hamper countries’ ability in employing tax policy to create foreign direct investment (FDI). 

As a result, countries not deemed particularly appealing for investment, other than for a low tax regime, will be left at a major disadvantage.

Foreign firms and international agencies would probably move elsewhere where there are low taxes, coupled with other pull factors, thereby taking their jobs and wealth with them. Not to mention all the other related benefits of FDI.

In addition, America’s call for a global minimum tax is likely to be of further detriment to developing economies.

Although the minimum rate has not yet been announced, when it is, a multinational’s tax rate in each jurisdiction will be set against that minimum.

If a lower rate is paid in that jurisdiction, then a top-up tax will have to be paid. Then the additional tax-take will go where the parent company is domiciled.

Consequently, taking into account that most of the world’s major corporations are in developed economies, particularly the United States, it would seem the plans are leaning towards the desires of those nations.

Moreover, the lack of autonomy is another reason why a global corporation tax could hinder economic growth.

Every country has unique economic traits and challenges.  Under the proposed plans, it seems unlikely that a country would be able to support certain key areas of their economies when required, like agriculture or tourism, by offering rebates for example.

Also, for many firms, it can be assumed that a minimum global corporation tax rate would increase their costs of doing business worldwide.

Surely this is not the way forward as the world is faced with dealing with the fallout from the pandemic?

The plans may also be flawed as each country will keep its unique set of intricate exemptions and loopholes, which would continue to be utilised by powerful corporations.

Therefore, it’s safe to say a minimum global corporation tax rate will do little to even out the playing field. If anything, it might make it worse.

Economies will recover more quickly by keeping tax and business competitive.

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